UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2017

 

    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _____ to _____

 

Commission File No. 333-127347

 

PROVISION HOLDING, INC.
(Exact name of Registrant as specified in its charter)

 

Nevada   20-0754724
(State or other jurisdiction of 
incorporation or organization)
  (IRS Employer
Identification No.)

 

9253 Eton Avenue, Chatsworth, California

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (818) 775-1624

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

There were 123,052,303 shares of the Registrant’s $0.001 par value common stock outstanding as of May 22, 2017.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page No.
Part I. Financial Information
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and June 30, 2016 1
     
  Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2017 and 2016 (Unaudited) 2
     
  Condensed Consolidated Statement of Stockholders’ Deficit for the nine months ended March 31, 2017 (Unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2017 and 2016 (Unaudited) 4
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 23
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
     
Item 4. Controls and Procedures 36
     
Part II. Other Information
     
Item 1. Legal Proceedings 37
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
     
Item 3. Default Upon Senior Securities 37
     
Item 4. Mine Safety Disclosures 37
     
Item 5. Other Information 37
     
Item 6. Exhibits 38
     
Signatures 39 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS

  

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

March 31,
2017

(Unaudited)

   June 30,
2016
 
ASSETS        
CURRENT ASSETS        
Cash  $637,629   $2,175,543 
Accounts receivable   12,000    - 
Inventory, net   2,214,362    3,521,739 
Prepaid expenses   196,240    592,769 
Other current assets   3,000    3,000 
           
TOTAL CURRENT ASSETS   3,063,231    6,293,051 
           
EQUIPMENT, net of accumulated depreciation   19,861    26,736 
           
INTANGIBLES, net of accumulated amortization   170,853    172,725 
           
TOTAL ASSETS  $3,253,945   $6,492,512 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $2,462,887   $2,651,657 
Payroll taxes, interest and penalties   622,909    590,799 
Accrued interest   2,535,305    2,476,036 
Unearned revenue   2,057,607    3,419,616 
Debt settlement payable   -    16,795 
Derivative liability   427,824    188,128 
Current portion of convertible debt, net of unamortized debt discount of $261,925 and $16,980 and net of unamortized warrant discount of $138,063 and $-0- and net of financing costs of $375,004 and $-0-   6,292,293    609,905 
Notes payable, net of unamortized debt discount of $40,563 and $-0-   110,937    90,000 
           
TOTAL CURRENT LIABILITIES   14,509,762    10,042,936 
           
CONVERTIBLE DEBT, net of current portion and unamortized debt discount of $703,655 and $1,291,892 and net of unamortized warrant discount of $12,690 and $363,663 and net of financing costs of $318,276 and $1,287,109   276,279    5,805,466 
Nonconvertible series A preferred stock, related party   -    100 
           
TOTAL LIABILITIES   14,786,041    15,848,502 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, par value $0.001 per share Authorized – 4,000,000 shares Designated 1,000 Series A preferred stock, Issued and outstanding – Nil and 1,000 shares, respectively   -    - 
Common stock, par value $0.001 per share Authorized –300,000,000 shares - issued and outstanding – 122,798,480 and 89,242,624, respectively   122,798    89,242 
Common stock to be issued for services, par value $0.001 per share, 706,000 and 1,249,998, respectively   56,480    262,166 
Additional paid-in capital   28,303,297    25,100,864 
Less receivable for stock   (100,000)   (50,000)
Accumulated deficit   (39,914,671)   (34,758,262)
           
TOTAL STOCKHOLDERS’ DEFICIT   (11,532,096)   (9,355,990)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $3,253,945   $6,492,512 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 1 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

   Three Months Ended   Nine Months Ended 
   March 31,   March 31, 
   2017   2016   2017   2016 
REVENUES                
Advertising revenues  $185,317   $-   $344,017   $- 
Hardware revenues   -    19,494    110,195    50,660 
Hardware revenues – related party   -    1,677,462    1,196,552    4,531,287 
Service related revenues – related party   -    157,560    -    611,735 
Software revenues – related party   -    171,993    66,456    205,223 
TOTAL REVENUES   185,317    2,026,509    1,717,220    5,398,905 
COST OF REVENUES   55,272    1,654,592    1,896,255    4,476,652 
GROSS PROFIT(LOSS)   130,045    371,917    (179,035)   922,253 
EXPENSES                    
General and administrative   833,681    722,162    2,350,220    1,471,810 
Research and development   37,934    119,407    257,838    216,306 
TOTAL EXPENSES   871,615    841,569    2,608,058    1,688,116 
LOSS FROM OPERATIONS   (741,570)   (469,652)   (2,787,093)   (765,863)
OTHER INCOME (EXPENSE)                    
Derivative liability expense – insufficient shares   -    -    -    (85,960)
Change in fair value of derivative   (18,584)   -    43,834     
Gain on forgiveness of debt   -    -    -    597,312 
Loss on settlement of debt   -    -    (48,000)   - 
Amortization of debt and warrant discount and financing costs   (690,998)   -    (1,608,708)   - 
Other income   -    (823)   -    2,053 
Interest expense   (204,120)   (443,268)   (756,442)   (1,182,116)
TOTAL OTHER INCOME (EXPENSE)   (913,702)   (444,091)   (2,369,316)   (668,711)
LOSS BEFORE INCOME TAXES   (1,655,272)   (913,743)   (5,156,409)   (1,434,574)
Income tax expense   -        -     
NET LOSS  $(1,655,272)  $(913,743)  $(5,156,409)  $(1,434,574)
NET LOSS PER COMMON SHARE                    
Basic and diluted  $(0.02)  $(0.01)  $(0.05)  $(0.02)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                    
Basic and diluted   106,217,807    78,773,014    99,364,166    77,797,425 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 2 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED MARCH 31, 2017

UNAUDITED

 

   Preferred A
Stock
   Common Stock   Additional
Paid-in
   Shares
to be
   Receivable for   Accumulated   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Issued   Stock   Deficit   Deficit 
Balance, June 30, 2016   1,000   $    89,242,624   $89,242   $25,100,864   $262,166   $(50,000)  $(34,758,262)  $(9,355,990)
Issuance of common stock on conversion of debt and accrued interest   -    -    15,124,939    15,125    1,540,456    -    -    -    1,555,581 
Issuance of common stock for services received   -    -    4,538,966    4,539    687,037    (254,166)   -    -    437,410 
Issuance of common stock for cash, net   -    -    13,333,339    13,333    611,734    -    (50,000)   -    575,067 
Relative fair value of warrants issued with stock for cash   -    -    -    -    154,933    -    -    -    154,933 
Issuance of options for services received   -    -    -    -    4,496    -    -    -    4,496 
Common stock issued for debt settlement   -    -    400,000    400    47,600    -    -    -    48,000 
Common stock to be issued for services   -    -    -    -    -    48,480    -    -    48,480 
Issuance of warrants   -    -    158,612    159    30,467    -    -    -    30,626 
Derivative liability reclass to additional paid in capital upon notes conversion   -    -    -    -    125,710    -    -    -    125,710 
Repurchase of preferred stock   (1,000)   -    -    -    -    -    -    -    - 
Net loss for the nine months ended March 31, 2017   -    -    -    -    -    -    -    (5,156,409)   (5,156,409)
Balance, March 31, 2017   -   $-    122,798,480   $122,798   $28,303,297   $56,480   $(100,000)  $(39,914,671)  $(11,532,096)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 3 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

   Nine Months
Ended March 31,
 
   2017   2016 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(5,156,409)  $(1,434,574)
Adjustments to reconcile net loss to net cash used in operating activities:          
Non-cash compensation   424,390    228,333 
Loss on debt settlement   48,000    - 
Gain on forgiveness of debt   -    (597,312)
Depreciation expense   6,875    - 
Amortization   1,872    1,872 
Amortization of prepaid financing cost   622,329    344,750 
Amortization of prepaid expenses   396,529    - 
Amortization of debt discount   669,136    68,658 
Amortization of warrant discount   212,910    133,128 
Fair value of options expense   4,496    - 
Fair value of warrants expense   30,626    - 
Change in the fair value of derivative liability   (43,834)   - 
Derivative liability expense – insufficient shares   -    85,960 
Non-cash interest expenses   104,334    144,208 
Changes in operating assets and liabilities:          
Accounts receivable   (12,000)   (365,366)
Inventory   1,307,377    92,795 
Prepaid expenses   -    (126,298)
Prepaid financing costs   -    (112,430)
Accounts payable and accrued liabilities   (188,771)   (280,673)
Preferred stock liability   (100)   100 
Payroll taxes, interest and penalties   32,110    (29,154)
Accrued interest   234,520    383,989 
Unearned revenue   (1,362,009)   (59,639)
NET CASH (USED IN) OPERATING ACTIVITIES   (2,667,619)   (1,521,623)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
    Purchase of fixed assets   -    (13,750)
NET CASH (USED IN) INVESTING ACTIVITIES   -    (13,750)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from convertible notes payable, net of fees   355,000    3,600,690 
Payments on debt settlement   (16,795)   (151,065)
Proceeds from promissory notes   61,500    - 
Proceeds from the sale of common stock, net of fees   730,000    - 
Payments on convertible notes payable   -    (27,500)
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   1,129,705    3,422,125 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (1,537,914)   1,886,752 
           
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD   2,175,543    128,968 
           
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD  $637,629   $2,015,720 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 4 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

UNAUDITED

 

  

Nine Months Ended

March 31,

 
   2017   2016 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
         
Interest paid  $521,923   $114,988 
Taxes paid  $-   $- 
           
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Issuance of shares of common stock for debt and accrued interest conversion  $1,555,581   $149,500 
           
Debt discount on convertible notes  $-   $38,493 
           
Fair value of warrant issued for debt discount and deferred financing cost  $-   $931,391 
           
Derivative liability expense – insufficient shares  $-   $85,960 
           
Common stock to be issued now issued  $254,166   $- 
           
Initial derivative liability on the notes issuance date  $409,240   $182,701 
           
Derivative liability reclass into additional paid in capital upon notes conversion  $125,710   $182,701 
           
Proceed from convertible notes directly paid to accounts payable balance  $-   $91,550 
           
Re-class accrued interest into convertible debt  $-   $37,000 
           
Stock issued in conjunction with cashless warrant exercise  $159   $- 
           
Debt discount on non convertible notes  $61,500   $- 
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 5 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION

 

Business Description and Presentation

 

Provision Holding, Inc. (“Provision” or the “Company”) focused on the development and distribution of Provision’s patented three-dimensional, holographic interactive displays focused at grabbing and holding consumer attention particularly and initially in the advertising and product merchandising markets. The systems display a moving 3D image size to forty inches in front of the display, projecting a digital video image out into space detached from any screen, rendering truly independent floating images featuring high definition and crisp visibility from far distances. The nearest comparable to this technology can be seen in motion pictures such as Star Wars and Minority Report, where objects and humans are represented through full-motion holograms.

 

Provision’s proprietary and patented display technologies and software, and innovative solutions aim to attract consumer attention. Currently the Company has multiple contracts to place Provision’s products into large retail stores, as well as signed agreements with advertising agents to sell ad space to Fortune 500 customers. Given the technology’s potential in the advertising market, the Company is focused on creating recurring revenue streams from the sale of advertising space on each unit.

 

Corporate History

 

On February 14, 2008, MailTec, Inc. (now known as Provision Holding, Inc.) (the “Company”) entered into an Agreement and Plan of Merger, which was amended and restated on February 27, 2008 (as amended and restated, the “Agreement”), and closed effective February 28, 2008, with ProVision Merger Corp., a Nevada corporation and wholly owned subsidiary of the Company (the “Subsidiary”) and Provision Interactive Technologies, Inc., a California corporation (“Provision”). Pursuant to the Agreement, the Subsidiary merged into Provision, and Provision became a wholly owned subsidiary of the Company. As consideration for the merger of the Subsidiary into Provision, the Company issued 20,879,350 shares of the Company’s common stock to the shareholders, creditors, and certain warrant holders of Provision, representing approximately 86.5% of the Company’s aggregate issued and outstanding common stock, and the outstanding shares and debt, and those warrants whose holders received shares of the Company’s common stock, of Provision were transferred to the Company and cancelled.

 

Going Concern and Management Plans

 

These unaudited condensed consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company had accumulated deficit at March 31, 2017 of $39,914,671. The Company has negative working capital of $11,446,531 as of March 31, 2017. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required and, ultimately, to attain profitable operations. Management’s plan to eliminate the going concern situation include, but are not limited to, the raise of additional capital through issuance of debt and equity, improved cash flow management, aggressive cost reductions, and the creation of additional sales and profits across its product lines.

 

Basis of presentation

 

Throughout this report, the terms “we”, “us”, “ours”, “Provision” and “company” refer to Provision Holding, Inc., including its wholly-owned subsidiary. The condensed consolidated balance sheet presented as of June 30, 2016 has been derived from the Company’s audited consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, (instructions to Form 10-Q and Article 8 of Regulation S-X). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to those rules and regulations, but we believe that the disclosures are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the annual financial statements and notes for the fiscal year ended June 30, 2016 included in Provision’s Annual Report on Form 10-K filed with the SEC on October 13, 2016. In the opinion of management, all adjustments, consisting of normal, recurring adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results of operations for the three and nine month period ended March 31, 2017 are not necessarily indicative of the results for the fiscal year ending June 30, 2017.

 

 6 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

Principles of Consolidation and Reporting

 

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary. All significant inter-company balances and transactions have been eliminated in consolidation. The Company uses a fiscal year end of June 30.

 

There have been no significant changes in the Company's significant accounting policies during the three and nine months ended March 31, 2017 compared to what was previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

 

Basis of comparison

 

Certain prior-period amounts have been reclassified to conform to the current period presentation.

 

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 certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are based on the Company’s historical results as well as management’s future expectations. The Company’s actual results could vary materially from management’s estimates and assumptions.

 

Management makes estimates that affect certain accounts including, deferred income tax assets, estimated useful lives of property and equipment, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the year in which such adjustments are determined.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents. As of March 31, 2017 and June 30, 2016, the Company’s cash and cash equivalents were on deposit in federally insured financial institutions, and at times may exceed federally insured limits.

 

Accounts Receivable

 

Accounts receivable are not collateralized and interest is not accrued on past due accounts. Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. After management has exhausted all collection efforts, management writes off receivables and the related reserve. Additionally, the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial difficulties. Actual bad debt results could differ materially from these estimates.

 

Inventories

 

Inventories are stated at the lower of cost (first-in, first-out) or market. The Company periodically reviews its inventories for indications of slow movement and obsolescence and records an allowance when it is deemed necessary.

 

Property and Equipment

 

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses are recognized based on estimated fair values if the sum of expected future undiscounted cash flows of the related assets is less than their carrying values.

 

 7 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

Intangibles

 

Intangibles represent primarily costs incurred in connection with patent applications. Such costs are amortized using the straight-line method over the useful life of the patent once issued, or expensed immediately if any specific application is unsuccessful.

 

Revenue Recognition

 

The Company recognizes gross sales when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collection is probable. It recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). Revenue from licensing, distribution and marketing agreements is recognized over the term of the contract. Revenue from the sale of hardware is recognized when the product is complete and the buyer has accepted delivery. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

 

Cost of Revenue

 

Cost of revenue in respect to sale of hardware consists of costs associated with manufacturing of 3D displays, Kiosk machine, transportation, and other costs that are directly related to a revenue-generating. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement.

 

Depreciation and Amortization

 

The Company depreciates its property and equipment using the straight-line method with estimated useful lives from three to seven years. For federal income tax purposes, depreciation is computed using an accelerated method.

 

Shipping and Handling Costs

 

The Company’s policy is to classify shipping and handling costs as a component of Costs of Revenues in the Statement of Operations.

 

Unearned Revenue

 

The Company bills customers in advance for certain of its services. If the customer makes payment before the service is rendered to the customer, the Company records the payment in a liability account entitled customer prepayments and recognizes the revenue related to the services when the customer receives and utilizes that service, at which time the earnings process is complete. The Company recorded $2,057,607 and $3,419,616 as of March 31, 2017 and June 30, 2016, respectively as deferred revenue.

 

Significant Customers

 

During the three ended March 31, 2017 the Company had one customer which accounted for more than 10% of the Company’s revenues (94%). During the nine months ended March 31, 2017 the Company had two customers which accounted for more than 10% of the Company’s revenues (74% and 19%). During the three and nine months ended March 31, 2016 the Company had one customer which accounted for more than 10% of the Company’s revenues (99% and 99%, respectively).  

 

Research and Development Costs

 

The Company charges all research and development costs to expense when incurred. Manufacturing costs associated with the development of a new process or a new product are expensed until such times as these processes or products are proven through final testing and initial acceptance by the customer.

 

For the three months ended March 31, 2017 and 2016, the Company incurred $37,934 and $119,407, respectively for research and development expense which are included in the unaudited condensed consolidated statements of operations. For the nine months ended March 31, 2017 and 2016, the Company incurred $257,838 and $216,306, respectively for research and development expense which are included in the unaudited condensed consolidated statements of operations.

 

 8 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

Fair Value of Financial Instruments

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2017 and June 30, 2016. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.

 

The Company uses fair value measurements under the three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure for fair value measures. The three levels are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

   Carrying   Fair Value Measurements 
Using Fair Value Hierarchy
 
   Value   Level 1   Level 2   Level 3 
Convertible notes (net of discount) – March 31, 2017  $6,568,572   $      -   $      -   $6,568,572 
Convertible notes (net of discount) – June 30, 2016  $6,415,371   $-   $-   $6,415,371 
Derivative liability – March 31, 2017  $427,824   $-   $-   $427,824 
Derivative liability – June 30, 2016  $188,128   $-   $-   $188,128 

 

The following table provides a summary of the changes in fair value of the Company’s Promissory Notes, which are both Level 3 liabilities as of March 31, 2017:

 

Balance at June 30, 2016  $6,415,371 
Issuance of notes – net of discount   355,000 
Derivative liability on issuance of notes   (304,906)
Accretion of debt and warrant discount and prepaid financing costs   1,483,437 
Issuance of shares of common stock for convertible debt   (1,380,330)
Balance March 31, 2017  $6,568,572 

 

The Company determined the value of its convertible notes using a market interest rate and the value of the warrants and beneficial conversion feature issued at the time of the transaction less the accretion. There is no active market for the debt and the value was based on the delayed payment terms in addition to other facts and circumstances at the end of March 31, 2017 and June 30, 2016. 

 

Derivative Financial Instruments

 

The Company evaluates our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

 9 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

Certain of the Company’s embedded conversion features on debt and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to settle these outstanding contracts, or due to other rights connected with these contracts, such as registration rights. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the latest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the warrants are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date. 

 

The Company estimates the fair value of these instruments using the Black-Scholes option pricing model and the intrinsic value if the convertible notes are due on demand.

 

We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price “reset” adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock (“ASC 815-40”). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. Any change in fair value during the period recorded in earnings as “Other income (expense) - gain (loss) on change in derivative liabilities.”

 

The following table represents the Company’s derivative liability activity for the period ended:

Balance at June 30, 2016  $188,128 
Derivative liability reclass into additional paid in capital upon notes conversion   (125,710)
Initial measurement at issuance date of the notes   409,240 
Change in fair value of derivative at period end   (43,834)
Balance March 31, 2017  $427,824 

 

Commitments and Contingencies:

 

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, environment liability and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated.

 

Basic and Diluted Income (Loss) per Share

 

Basic income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of March 31, 2017, the Company had debt instruments, options and warrants outstanding that can potentially be converted into approximately 116,907,345 shares of common stock.

 

Anti-dilutive securities not included in diluted loss per share relating to:    
Warrants outstanding   333,333 
Options vested and outstanding   - 
Convertible debt and notes payable including accrued interest   17,454,009 

 

 10 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

Material Equity Instruments

 

The Company evaluates stock options, stock warrants and other contracts (convertible promissory note payable) to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity (“ASC 815”). The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative financial instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative financial instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC 815 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

 

Certain of the Company’s embedded conversion features on debt and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 840-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the earliest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the convertible notes or warrants are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.

 

Recent Accounting Pronouncements

 

In January 2016, the FASB issued an accounting standard update which requires, among other things, that entities measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value, with changes in fair value recognized in earnings. Under the standard, entities will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available for sale as a component of other comprehensive income. For equity investments without readily determinable fair values the cost method of accounting is also eliminated, however subject to certain exceptions, entities will be able to elect to record equity investments without readily determinable fair values at cost, less impairment and plus or minus adjustments for observable price changes, with all such changes recognized in earnings. This new standard does not change the guidance for classifying and measuring investments in debt securities and loans. The standard is effective for us on July 1, 2018 (the first quarter of our 2019 fiscal year). The Company is currently evaluating the anticipated impact of this standard on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.

 

 11 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 1

  ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.

 

In June 2016, the FASB Issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” and clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in Topic 606 is retrospectively applied. The amendments do not change the core principle of the guidance in Topic 606. The effective dates are the same as those for Topic 606. The Company has not yet determined the impact of ASU 2016-12 on its consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, in an effort to reduce the diversity of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company has not yet determined the impact of ASU 2016-15 on its consolidated financial statements.

 

In October 2016, the FASB issued ASU No 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted. The Company has not yet determined the impact of ASU 2016-16 on its consolidated financial statements.

 

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has not yet determined the impact of ASU 2017-01 on its consolidated financial statements.

 

 12 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 2

  INVENTORY

 

Inventory consists of raw materials; work in process and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market.

 

The carrying value of inventory consisted of the following:

   March 31,
2017
   June 30,
2016
 
         
Raw materials  $36,794   $26,619 
Finished goods   2,334,933    3,652,485 
    2,371,727    3,679,104 
Less Inventory reserve   (157,365)   (157,365)
Total  $2,214,362   $3,521,739 

 

At March 31, 2017 and June 30, 2016, the inventory reserve remained unchanged, respectively.

 

NOTE 3   PREPAID EXPENSES

 

During the nine months ended March 31, 2017, the Company prepaid certain expenses related to software licensing fees. At March 31, 2017 and June 30, 2016, $196,240 and $592,769, respectively, of these expenses remains to be amortized over the useful life through May 2017.

 

NOTE 4   PROPERTY and EQUIPMENT, net

 

Property and equipment consists of the following:

 

   March 31,
2017
   June 30,
2016
 
         
Furniture and fixtures  $12,492   $12,492 
Computer equipment   39,180    39,180 
Equipment   4,493    4,493 
    56,165    56,165 
Less accumulated depreciation   (36,304)   (29,429)
Total  $19,861   $26,736 

 

The aggregate depreciation charge to operations was $2,292 and $-0- and $6,875 and $ -0- for the three and nine months ended March 31, 2017 and 2016, respectively. The depreciation policies followed by the Company are described in Note 1.

 

NOTE 5   PREPAID FINANCING COSTS

 

The Company pays financing costs to consultants and service providers related to certain financing transactions. The financing costs are then amortized over the respective life of the financing agreements. As such, the Company has prepaid $693,280 and $1,287,109 in financing costs at March 31, 2017 and June 30, 2016, respectively. Prepaid financing costs are presented with the net convertible debt as appropriate.

 

The aggregate amortization of prepaid financing cost charged to operations was $209,958 and $169,417 and $622,329 and $344,750 for three and nine months period ended March 31, 2017 and 2016, respectively.

 

 13 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 6

  INTANGIBLES, net of accumulated amortization

 

Intangibles consist of the following:

   March 31,
2017
   June 30,
2016
 
         
Patents in process  $142,116   $142,116 
Patents issued   58,037    58,037 
    200,153    200,153 
           
Less accumulated amortization   (29,300)   (27,428)
           
Total  $170,853   $172,725 

 

The aggregate amortization expense charged to operations was $624 and $624 and $1,872 and $1,872 for three and nine months ended March 31, 2017 and 2016, respectively. The amortization policies followed by the Company are described in Note 1.

 

As of March 31, 2017, the estimated future amortization expense related to finite-lived intangible assets was as follows:

 

Fiscal year ending,    
June 30, 2017- remaining three months  $624 
June 30, 2018   2,496 
June 30, 2019   2,496 
June 30, 2020   2,496 
June 30, 2021   2,496 
Thereafter   160,245 
      
Total  $170,853 

 

NOTE 7   DEBT SETTLEMENT

 

During February 2015 the Company settled with a convertible note holder to repay the principal and accrued interest due with an interest free scheduled payment plan. On the date of the settlement the principal and accrued interest had a total value of $333,563. The scheduled payment plan calls for payments totaling $260,000. Accordingly, the Company recorded $73,563 of gain on debt extinguishment in June 2015. The Company repaid $16,795 on this debt during the nine months ended March 31, 2017. The remaining balance is $-0- and $16,795 at March 31, 2017 and June 30, 2016, respectively. 

 

During January 2017 the Company settled a prior debt. According to the settlement agreement, the Company is required to issue 400,000 shares of common stock to the recipient. The shares were valued at $48,000 and the Company has recorded the same as expense in the statement of operations for the nine months ended March 31, 2017. 

 

 14 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 8

  CONVERTIBLE DEBT

 

Convertible debt consists of the following:

 

   March 31,
2017
   June 30,
2016
 
         
Convertible notes payable, annual interest rate of 10% to 12%, due dates range from May 2010 to February 2019 and convertible into common stock at a rate of $0.04 to $1.00 per share.  $7,628,185   $8,625,015 
Convertible note payable, annual interest rate of 10%, convertible into common stock at a rate of $1.00 per share and due July 2017.   750,000    750,000 
Unamortized prepaid financing costs   (693,280)   (1,287,109)
Unamortized warrants discount to notes   (150,753)   (363,663)
Unamortized debt discount   (965,580)   (1,308,872)
    6,568,572    6,415,371 
Less current portion   (6,292,293)   (609,905)
Convertible debt, net of current portion and debt discount  $276,279   $5,805,466 

 

During the nine month period ended March 31, 2017 the few holders of the Notes converted $1,555,581 including accrued interest value into 15,124,939 shares of the Company's common stock. The determined fair value of the debt derivatives of $125,710 was reclassified into equity during the period ended March 31, 2017.

 

For the three and nine months ended March 31, 2017 and 2016, $70,970 and $69,701 and $212,910 and $133,128 were expensed in the statement of operation as amortization of warrant discount and shown as interest expenses, respectively. For the three and nine months ended March 31, 2017 and 2016, $284,799 and $9,982 and $648,199 and $68,658 was amortized of debt discount and shown as interest expenses, respectively.

 

The aggregate amortization of prepaid financing cost charged to operations was $209,959 and $169,417 and $622,329 and $344,750 for three and nine month period ended March 31, 2017 and 2016, respectively.

 

Accrued and unpaid interest for convertible notes payable at March 31, 2017 and June 30, 2016 was $1,678,212 and $1,678,138, respectively.

 

For the three and nine months ended March 31, 2017 and 2016, $235,263 and $94,744 and $685,759 and $350,530, was charged as interest on debt and shown as interest expenses, respectively.

 

NOTE 9   DERIVATIVE LIABILITY

 

On June 10, 2016, the Company entered into a Loan Agreement with an investor pursuant to which the Company reissued a convertible promissory note from a selling investor in the principal amount of for up to $160,330. The Note is convertible into shares of common stock at an initial conversion price subject to adjustment as contained in the Note. The Conversion Price is the 80% of the average closing price of the last thirty trading days of the stock, not lower than $0.10. The Note accrues interest at a rate of 7% per annum and matures on December 10, 2017.

 

Due to the variable conversion price associated with this convertible promissory note, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.

 

 15 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 9

  DERIVATIVE LIABILITY (Continued)

 

The initial fair value of the embedded debt derivative of $206,996 was allocated as a debt discount $76,163 was determined using intrinsic value with the remainder $130,833 charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions: 

 

(1) dividend yield of   0%;
(2) expected volatility of   164%,
(3) risk-free interest rate of   0.87%,
(4) expected life of   36 months
(5) fair value of the Company’s common stock of   $0.26 per share.

 

During the period ended March 31, 2017, the above note was fully converted into shares and hence, now onwards no further derivative liability needs to accrue related to this note.

 

On February 7, 2017, the Company entered into a Loan Agreement with an investor pursuant to which the Company issued a convertible promissory note in the principal amount of for up to $158,500. The Note is convertible into shares of common stock at an initial conversion price subject to adjustment as contained in the Note. The Conversion Price is the 61% of the average closing price of the prior ten days. The Note accrues interest at a rate of 12% per annum and matures on November 12, 2017.

 

Due to the variable conversion price associated with this convertible promissory note, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.

 

The initial fair value of the embedded debt derivative of $158,670 was allocated as a debt discount $101,336 was determined using intrinsic value with the remainder $57,334 charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions:

 

(1) dividend yield of   0%;
(2) expected volatility of   149%,
(3) risk-free interest rate of   0.79%,
(4) expected life of   9 months
(5) fair value of the Company’s common stock of   $0.09 per share.

 

On March 2, 2017, the Company entered into a Loan Agreement with an investor pursuant to which the Company issued a convertible promissory note in the principal amount of for up to $225,000. The Note is convertible into shares of common stock at an initial conversion price subject to adjustment as contained in the Note. The Conversion Price is the 60% of the average of the lowest three intra-day trading prices in the twenty days immediately preceding the applicable conversion. The Note accrues interest at a rate of 0% per annum and matures on September 2, 2017.

 

Due to the variable conversion price associated with this convertible promissory note, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.

 

The initial fair value of the embedded debt derivative of $250,570 was allocated as a debt discount $203,571 was determined using intrinsic value with the remainder $46,999 charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions:

 

(1) dividend yield of   0%;
(2) expected volatility of   134%,
(3) risk-free interest rate of   0.84%,
(4) expected life of   6 months
(5) fair value of the Company’s common stock of   $0.08 per share.

 

 16 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 9

  DERIVATIVE LIABILITY (Continued)

 

During the three and nine months ended March 31, 2017 and 2016, the Company recorded the loss (gain) in fair value of derivative $18,584 and $(-0-) and $(43,834) and $-0-, respectively. 

 

For the three and nine months ended March 31, 2017 and 2016, $51,335 and $-0- and $126,107 and $-0-, respectively, was expensed in the statement of operation as amortization of debt discount related to above notes and shown as interest expenses, respectively.

 

The following table represents the Company’s derivative liability activity for the period ended:

 

Balance at June 30, 2016  $188,128 
Derivative liability reclass into additional paid in capital upon notes conversion   (125,710)
Initial measurement at issuance date of the notes   409,240 
Change in fair value of derivative at period end   (43,834)
Balance March 31, 2017  $427,824 

 

NOTE 10   NOTES PAYABLE

 

During February 2017, the Company entered into four promissory notes with investors pursuant to which the Company issued four promissory notes in the principal amount of $61,500. The notes accrue interest at a rate of 5% per annum and mature in 120 days. As additional consideration, the Company issued the investors 1,050,000 shares of common stock. The value of the stock consideration was limited to the value of the promissory notes, $61,500. The stock consideration was recorded as a discount against the notes. For the three and nine months ended March 31, 2017 and 2016, $20,938 and $-0- and $20,937 and $-0-, respectively, was expensed in the statement of operations as amortization of debt discount related to the notes and show as interest expenses. The unamortized debt discount was $40,563 and $-0- at March 31, 2017 and June 30, 2017, respectively.

 

At March 31, 2017 and June 30, 2016, $151,500 and $90,000, respectively, of debt was outstanding with interest rates of 5% to 8%.

 

Accrued and unpaid interest for these notes payable at March 31, 2017 and June 30, 2016 were $29,421 and $26,528, respectively.

 

For the three and nine months ended March 31, 2017 and 2016, $1,349 and $1,694 and $3,393 and $5,111 was charged as interest on debt and shown as interest expenses, respectively.

 

NOTE 11   COMMITMENTS

 

Lease Agreement - The Company leases its office space under a month-to-month lease. Rent expense was $25,030 and $18,456 and $73,129 and $55,368 for the three and nine months ended March 31, 2017 and 2016, respectively. On March 2, 2016, the Company entered into an Amendment to Lease in order to extend the current lease through March 31, 2019. The lease calls for monthly rent of $6,719 per month for the period of April 1, 2016 through March 31, 2017. The monthly rent increases 4% for each of the next two years.

 

The future minimum payments under this lease are as follows:

 

Fiscal year ending, June 30:      
2017 – remaining three months   $ 20,964  
2018     84,696  
2019     65,412  
         
Total   $ 171,072  

 

The Company is delinquent in remitting its payroll taxes to the applicable governmental authorities. Total due, including estimated penalties and interest is $622,909 and $590,799 at March 31, 2017 and June 30, 2016, respectively.

 

 17 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 12

  EQUITY

 

Preferred Stock

 

The Company is authorized to issue 4,000,000 shares of Preferred Stock with a par value of $0.001 per share as of December 31, 2016. Preferred shares issued and outstanding at March 31, 2017 and June 30, 2016 were Nil and 1,000 shares.

 

On December 30, 2015, the Company filed an amendment to the Company's Articles of Incorporation, as amended, in the form of a Certificate of Designation that authorized for issuance of up to 1,000 shares of Series A preferred stock, par value $0.001 per share, of the Company designated “Super Voting Preferred Stock” and established the rights, preferences and limitations thereof. The pertinent rights and privileges of each share of the Super Voting Preferred Stock are as follows: 

 

(i) each share shall not be entitled to receive any dividends nor any liquidation preference;

 

(ii) each share shall not be convertible into shares of the Company’s common stock; 

 

(iii) shall be automatically redeemed by the Company at $0.10 per share on the first to occur of the following triggering events: (a) 90 days following the date on which this Certificate of Designation is filed with the Secretary of State of Nevada or (b) on the date that Mr. Thornton ceases, for any reason, to serve as officer, director or consultant of the Company; and 

 

(iv) long as any shares of the Series A Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right to vote in an amount equal to 51% of the total vote (representing a majority voting power) effecting an increase in the authorized common stock of the Company. Such vote shall be determined by the holder(s) of the then issued and outstanding shares of Series A Preferred Stock. For example, if there are 10,000 shares of the Company’s common stock issued and outstanding at the time of a shareholder vote, the holders of the Series A Preferred Stock, will have the right to vote an aggregate of 10,408 shares, out of a total number of 20,408 shares voting. The amount of voting rights is determined based on the common shares outstanding and at the record date for the determination of shareholders entitled to vote at each meeting of shareholders of the Company or action by written consent in lieu of meetings with respect to effecting an increase in the authorized shares as presented to the shareholders of the Company. Each holder of Super Voting Preferred Stock shall vote together with the holders of Common Stock, as a single class, except (i) as provided by Nevada Statutes and (ii) with regard to the amendment, alteration or repeal of the preferences, rights, powers or other terms with the written consent of the majority of holders of Super Voting Preferred Stock. 

 

On December 31, 2015, the Company issued 1,000 shares of Super Voting Preferred Stock for $0.10 per share to Curt Thornton, President and Chief Executive Officer, and a director of the Company, as described in Note 13 Related Party Transactions.

 

The Preferred Stock – Series A has a mandatory redemption provision of $0.10 per share, accordingly it is classified as a liability in the balance sheet.

 

During the period ended March 31, 2017, the Company repurchase the said 1,000 Preferred Stock at par value of $100. Preferred shares issued and outstanding at December 31, 2016 were Nil.

 

Common Stock

 

On December 31, 2015, the Company amended its Articles of Incorporation by filing a Certificate of Amendment with the Secretary of State of Nevada to effect an increase in the number of the Company’s authorized common shares from 100,000,000 to 200,000,000. The increase in the authorized number of shares of common stock was approved by the Board of Director of the Company on December 30, 2015 and holders of more than 50% of the voting power of the Company’s capital stock on December 31, 2015.

 

On June 30, 2016, the Company amended its Articles of Incorporation by filing a Certificate of Amendment with the Secretary of State of Nevada to effect an increase in the number of the Company’s authorized common shares from 200,000,000 to 300,000,000. The increase in the authorized number of shares of common stock was approved by the Board of Director of the Company on June 30, 2016 and holders of more than 50% of the voting power of the Company’s capital stock. The Company’s ticker symbol and CUSIP remain unchanged. 

 

 18 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 12   EQUITY (Continued)

 

As of March 31, 2017 and June 30, 2016, there were 122,798,480 and 89,242,624 shares of common stock issued and outstanding, respectively.

 

During the nine months ended March 31, 2017, the Company issued 4,538,966 shares of common stock in exchange for consulting services valued at $691,577, out of which $254,166 relates to prior period services.

 

During the nine months ended March 31, 2017 the Company issued 15,124,939 shares of its common stock in conversion of $1,555,581 debt and accrued interest.

 

During January 2017 the Company settled a prior debt. According to the settlement agreement, the Company is required to issue 400,000 shares of common stock to the recipient. The shares were valued at $48,000 and the Company has recorded the same as expense in the statement of operations for the nine months ended March 31, 2017. 

 

On March 31, 2017, the Company accepted and entered into Subscription Agreements (the “Subscription Agreements”) for 13,333,339 shares of Company’s common stock with 15 accredited investors (the “Investors”) for an aggregate purchase price of $800,000 at a price of $0.06 per share. Each Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.09 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Warrants are valued at $154,933. Net cash received after fees of $20,000, the warrant valuation of $154,933 and a subscription receivable of $50,000 was $575,067.

 

Warrants

 

Warrant activity during the nine months ended March 31, 2017, is as follows:

 

   Warrants   Weighted-
Average
Exercise Price
   Aggregate
Intrinsic Value
 
Outstanding and exercisable at June 30, 2016   26,396,958   $0.14   $3,695,574 
Granted   3,041,667    0.04      
Exercised  (1)   (375,000)   0.07      
Expired   (1,050,000)   0.05      
Outstanding and exercisable at March 31, 2017   28,013,625   $0.14   $3,883,963 

 

(1)Consists of cashless exercise of 375,000 warrants in exchange for 158,612 shares of Common Stock.

 

During the nine months ended March 31, 2017, the Company issued 375,000 warrants and recorded $30,626 of stock compensation expense.

 

The fair value of the described above warrants was determined using the Black-Scholes Model with the following assumptions:

(1) risk free interest rate of 0.44%;

(2) dividend yield of 0%;

(3) volatility factor of 151%;

(4) an expected life of the conversion feature of 3 months, and

(5) estimated fair value of the company’s common stock of $0.12 per share.

 

 19 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 12

  EQUITY (Continued)

 

Stock Option Plan

 

Stock option activity during the nine months ended March 31, 2017 is as follows:

 

   Stock Options   Weighted-
Average
Exercise Price
   Aggregate
Intrinsic
Value
 
Outstanding at June 30, 2016   -   $-   $- 
Granted   50,000    0.23    11,500 
Exercised               
Expired               
Outstanding March 31, 2017   50,000   $0.23   $11,500 
Exercisable at March 31, 2017   34,000   $0.23   $5,060 
 Un-exercisable at March 31, 2017   16,000   $0.23   $6,440 

 

The Company has one stock option plan:  The Provision Interactive Technologies, Inc. 2002 Stock Option and Incentive Plan, (the “Plan”).  As of March 31, 2017, there were 3,324,149 shares available for issuance under the Plan.  The Plan is administered by the Company’s Board of Directors, (the “Board”).

 

As of March 31, 2017, the Plan provides for the granting of non-qualified and incentive stock options to purchase up to 5,000,000 shares of common stock.  Options vest at rates set by the Board, not to exceed five years and are exercisable up to ten years from the date of issuance.   The option exercise price is set by the Board at time of grant.  Options and restricted stock awards may be granted to employees, officers, directors and consultants.

 

During the nine months ended March 31, 2017 and 2016, the Company issued 50,000 and -0- options and recorded $4,496 and $-0- of stock compensation expense, respectively.

 

The fair value of options exercised in the nine months ended March 31, 2017 and 2016 was approximately $-0- and $-0-, respectively.

 

As of March 31, 2017, there was $2,120 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under existing stock option plans.

 

Restricted Stock

 

On June 1, 2016, the Company issued 1,500,000 restricted shares per rule 144 of its Common Stock, vesting in equal amounts over six (6) months to its consultant as partial compensation for services.

 

The fair value of the restricted stock granted during the nine month period ended March 31, 2017 was stated at market price on the date of vested.

During the nine month period ended March 31, 2017 and 2016, the Company recorded expenses of $255,000 and $45,000, respectively, related to restricted stock vested to non-employees.

 

 20 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 13

  RELATED ENTITY ACTIVITIES

 

ProDava 3D

 

DB Dava LLC, a Delaware limited liability company (“DB”), and the Company agreed to engage in a venture for the purpose of exploiting the Company’s technology and its agreement with a national pharmacy chain to place a number of its kiosks in stores. In June 2014, the Company and DB, caused ProDava LLC (“ProDava”) to be formed, and the parties entered into the ProDava LLC Agreement (the “LLC Agreement”) on June 30, 2014, which set out, among other things, the parties’ respective rights and obligations with respect to ProDava.

 

The two members of ProDava are the Company and DB. At the time of the formation of ProDava, the LLC Agreement originally provided that DB owned 80 percent of the membership interests of ProDava and the Company owned 20 percent of the membership interests of ProDava, assuming a $50,000,000 capital contribution by DB. Pursuant to the LLC Agreement, the Company made a capital contribution of $12,500,000, which represented the agreed upon value of a certain agreements which granted the Company rights to place kiosks in retail stores.

 

The Company’s motivation to enter into the LLC Agreement was to use DB’s financing to place kiosks into retail stores. Pursuant to LLC Agreement, DB agreed to make a capital contribution of up to US$50,000,000. It was understood and agreed between the parties that the Company’s role in ProDava was to provide, among other things, the kiosks, the content and the know-how as to the placement and maintenance of the kiosks in retail stores.

 

To that end, ProDava entered into a Professional Services Agreement, dated June 30, 2014 (the “PSA”) with the Company, whereby ProDava engaged the Company to provide services for ProDava with respect to the sourcing, due diligence, acquisition, management, construction and marketing of the kiosks financed and purchased by ProDava. As full compensation for rendering and performing such services under the PSA, the Company was entitled to receive from ProDava, the unreimbursed expenses incurred by the Company. It was agreed and understood that DB’s role in ProDava was to provide the funding necessary for the unreimbursable expenses and the production, manufacture and maintenance of the kiosks placed in stores. As a result of the ownership percentage in ProDava, DB would receive 80% of the profits of the ProDava including advertising related revenue.

 

For the nine months ended March 31, 2017 and 2016 total revenue includes $1,263,008 and $5,348,245, respectively, revenue from a related party. For the three months ended March 31, 2017 and 2016 total revenue includes $-0- and $2,007,015, respectively, revenue from a related party. Also, total unearned revenue as of March 31, 2017 of $2,057,607 includes $1,256,607 advance for sales order received from a related party.

 

Transactions with Officers and Directors

 

On December 30, 2015, the Company entered into a Purchase Agreement with Curt Thornton, the Company's President and Chief Executive Officer for the sale of 1,000 shares of “Super Voting Preferred Stock – Series A” for $0.10 per share and the closing price of the Company's Common Stock was $0.08 per share, as reported on the Over-the-Counter Markets (OTCQB) on the date prior to the date the Board approved the transaction. The Series A Preferred Shares does not have a dividend rate or liquidation preference and are not convertible into shares of common stock. The shares of the Series A Preferred Stock shall be automatically redeemed by the Company at $0.10 per share on the first to occur of the following triggering events: (i) 90 days following the date on which this Certificate of Designation is filed with the Secretary of State of Nevada or (ii) on the date that Mr. Thornton ceases, for any reason, to serve as officer, director or consultant of the Company. For so long as any shares of the Series A Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right to vote in an amount equal to 51% of the total vote (representing a majority voting power) effecting an increase in the authorized common stock of the Company. Such vote shall be determined by the holder(s) of the then issued and outstanding shares of Series A Preferred Stock. For example, if there are 10,000 shares of the Company’s common stock issued and outstanding at the time of a shareholder vote, the holders of the Series A Preferred Stock, will have the right to vote an aggregate of 10,408 shares, out of a total number of 20,408 shares voting. The adoption of the Series A Preferred Stock and its issuance to Mr. Thornton was taken solely to allow the Company to increase the Company’s authorized shares of common stock. As a result, the Company determined that there was no recorded a preferred stock control premium for the Preferred Stock – Series A that was issued to Mr. Thornton. The rights and preferences of the shares are described in Note 12 Equity. During the period ended December 31, 2016, the Company repurchase the said 1,000 Preferred Stock at par value of $100. Preferred shares issued and outstanding at March 31, 2017 were Nil.

 

 21 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2017 AND 2016

UNAUDITED

 

NOTE 14   LEGAL PROCEEDINGS

 

On August 26, 2004, in order to protect its legal rights and in the best interest of the shareholders at large, the Company filed, in the Superior Court of California, a complaint alleging breach of contract, rescission, tortuous interference and fraud with Betacorp Management, Inc. In an effort to resolve all outstanding issues, the parties agreed, in good faith, to enter into arbitration in the State of Texas, domicile of the defendants. On August 11, 2006, a judgment was awarded against the Company in the sum of $592,312. A contingency loss of $592,312 was charged to operations during the year ended June 30, 2007. Subsequently, The Company filed a counter lawsuit and was awarded a default judgement in its favor, and as such removed the contingency loss during the year ended June 30, 2016.

 

Litigation

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

The Company initiated an action against DB in November 2016 seeking declaratory judgment. After the execution of the LLC Agreement, both DB and the Company performed their respective duties. The Company caused numerous kiosks to be manufactured for placement in retail stores in accordance with the PSA, maintained and serviced these kiosks. DB provided funds to ProDava for, the production of kiosks and for expenses incurred by the Company in connection with the maintenance of servicing of the kiosks. In total, DB provided sums totaling $6.5 million. In the first quarter of 2016, DB ceased providing the funding required by the LLC Agreement. DB advised The Company that DB was analyzing information and that it would make a determination as to whether it would continue to provide funding in accordance with the LLC Agreement. The Company has been incurring the reimbursable expenses that were to be reimbursed by DB. The LLC Agreement provides that, in the event that DB fails to fund any portion of the total amount is was required to provide in accordance with the terms of the LLC Agreement, the LLC Agreement provides for the recalculation of the parties’ membership interests in ProDava. The Company filed an action in the Supreme Court of the State of New York in New York County (Index No. 656127/2016) to seed to recalculate the ownership percentage of ProDava. DB filed a motion to dismiss and the Company filed an action opposing such motion. If successful, the Company will own a greater percentage of ProDava. If unsuccessful, the Company will have to continue to fund ProDava’s expenses until advertising income exceeds expenses.

 

NOTE 15   SUBSEQUENT EVENTS

 

During April 2017, the Company issued 1,038,199 shares of common stock pursuant to consulting agreements.

 

 22 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q and in our annual report on Form 10-K filed with the Securities and Exchange Commission.

 

THIS FILING, INCLUDING BUT NOT LIMITED TO “MANAGEMENT’S DISCUSSION AND ANALYSIS”, CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN SOCIAL, AND ECONOMIC CONDITIONS, AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE MARKET PENETRATION AND CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD- LOOKING STATEMENTS AS A RESULT OF SEVERAL FACTORS, INCLUDING THE RISKS FACED BY US AS DESCRIBED BELOW AND ELSEWHERE IN THIS FORM 10-Q. IN LIGHT OF THESE RISKS AND UNCERTAINTIES THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q WILL OCCUR. WE HAVE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, EXCEPT AS REQUIRED BY FEDERAL SECURITIES LAWS AND WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. WE MAY NOT UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN THOUGH OUR SITUATION MAY CHANGE.

 

Business History and Overview

 

Provision Holding, Inc. and its subsidiary, Provision Interactive Technologies, Inc. (“Provision”), is a purveyor of intelligent interactive 3D holographic display technologies, software, and integrated solutions for both commercial and consumer focused applications. Provision’s 3D holographic display systems projects full color, high resolution videos into space detached from the screen, without any special glasses. Provision is currently a market leader in true 3D consumer advertising display products.

 

We are focused on the development and distribution of our patented three-dimensional, holographic interactive video displays focused at grabbing and holding consumer attention particularly and initially in the advertising and product merchandising markets. The systems display a moving 3D image size to forty inches in front of the display, projecting a digital video image out into space detached from any screen, rendering truly independent floating images featuring high definition and crisp visibility from far distances. The nearest comparable to this technology can be seen in motion pictures such as Star Wars and Minority Report, where objects and humans are represented through full-motion holograms. In addition to selling the hardware for our patented three-dimensional, holographic interactive video displays, we are building our business into a digital media company offering advertising on a network of our 3D holographic video displays and integrating them into Provision’s 3D Savings Center kiosks.

 

We have a limited operating history upon which an investor can evaluate our business prospects, which makes it difficult to forecast our future operating results, in light of the risks, uncertainties and problems frequently encountered by companies with limited operating histories. These include, but are not limited to, competition, the need to develop customers and market expertise, market conditions, sales, and marketing and governmental regulation.

 

We were incorporated in Nevada under the name MailTec, Inc. on February 9, 2004. Pursuant to an Agreement and Plan of Merger, dated February 14, 2008, which was amended and restated on February 27, 2008 (as amended and restated, the “Agreement”), MailTec, Inc. with ProVision Merger Corp., a Nevada corporation and wholly owned subsidiary of the Company (the “Subsidiary”) and Provision Interactive Technologies, Inc., a California corporation (“ProVision”), the Subsidiary merged into ProVision, and ProVision became a wholly owned subsidiary of the Company. As consideration for the merger of the Subsidiary into ProVision, the Company issued 20,879,350 shares of the Company’s common stock to the shareholders, creditors, and certain warrant holders of ProVision, representing approximately 86.5% of the Company’s aggregate issued and outstanding common stock, and the outstanding shares and debt, and those warrants whose holders received shares of the Company’s common stock, of ProVision were transferred to the Company and cancelled. Effective February 28, 2008, pursuant to the Agreement, ProVision became a wholly owned subsidiary of the Company. At the time of the reverse acquisition, MailTec was not engaged in any active business.

 

Our corporate headquarters are located in Chatsworth, California and our phone number is (818) 775-1624. 

 

 23 

 

 

Products and Services

 

We believe we are well positioned to capitalize on advertisers’ demands as ProVision’s HoloVision™ display and 3D Savings Center kiosks offer advertisers and customers an opportunity to reach a highly sought-after, captive audience outside the home, in familiar settings like grocery stores, malls, convenience stores, gas stations, banks and other retail locations. We reach the consumer and business professional at the critical time - when they are away from their homes and businesses and when they are making their buying decisions.

 

ProVision is marketing our patented three-dimensional, holographic interactive video display and is also developing and marketing several new point-of-purchase, and other devices, tailored to specific industries with major international companies or readying to begin shortly; including the medical, entertainment, government and home markets. ProVision’s floating image display technologies have multiple potential market applications across a broad spectrum of industries. In addition to hardware sales, we are initially focusing our efforts on the point-of-purchase and advertising markets.

 

ProVision’s HoloVision™ display can be used for a number of applications, including:

 

Retail   Education   Medical   Entertainment   Consumer
Drug Stores / Convenience Stores   Primary / Secondary Schools   Doctors / Dentist Offices   Slot Machines, Pachinko   Home Game Consoles
Grocery Stores   Universities   Hospitals   Casinos   Computer Monitors
Banking   Museums   Imaging   Lottery   TV
Fast Food   Libraries       Movie Theaters   Cell Phones
Hotels / Hospitality   Science Centers       Video Games    
Electronics           Theme Parks    

 

The projected and estimated economic model for retail stores utilizing a kiosk application is (on a per machine basis):

 

3D Hologram Ads  Rotation of 10 Second Hologram Ads @ $150 per Ad  $1,500 
Coupons  Issuance of 11 Coupon Programs @ $100 per Program  $1,100 
Net Revenue  Per Machine (net of agency fees)  $2,600 
         
Operating Costs  Monthly Paper, Service and Network Fees  $150 
   Retailer Share (estimated at 25% of Net Revenue)  $650 
Operating Costs  Per Machine  $800 
         
Monthly Operating Profit Per Machine  $1,800 

 

The monthly operating profit per machine would be reduced by the financing costs, such as a lease of the machine or funding through a joint venture such as Pro Dava 3D.

 

Business Development

 

Launching our first products into grocery stores and retail pharmacies, we have developed a new patented application. Known as the “3D Savings Center”, this ProVision device projects 3D video advertisements and allows consumers to print coupons as well as receive non-cash awards. The 3D Savings Center kiosk provides consumer product goods companies and other advertisers with a new way of promoting their products at the point of purchase, where consumers are making 70% (seventy percent) of their buying decisions.

 

We tested our concept in Fred Meyer Stores, a division of The Kroger, Co., installing 3D Savings Center kiosks in the Pacific Northwest. We received advertising placements from some of the largest manufacturers in the country, including Unilever, Proctor & Gamble, Johnson & Johnson, BIC and Kimberly Clark. The Company has published a case study of this successful market trial which is available from the Company.

 

We have now aligned a retail chain, a hardware purchaser to buy 3D Savings Center kiosks to install into the retail chain and advertising agencies to sell ads for the 3D Savings Center kiosks and expect to generate additional revenue from hardware sales in the year ended June 30, 2017 and significant advertising sales thereafter.

 

 24 

 

 

Rite Aid Pharmacies

 

We plan to build, own, and operate networks of 3D Savings Center kiosks. In April 2013, we had an agreement with Rite Aid Pharmacies (“Rite Aid”) to install 3D Savings Centers kiosks in all participating Rite Aid stores throughout the United States. We successfully completed the pilot test phase with nine stores in Los Angeles, and have completed the manufacturing of, and received payment for, the first 200 3D Savings Center kiosks in March 2015. The Company began shipping the first 200 kiosks to be installed in stores at the end of March 2015. We have now shipped an additional 5003D Savings Center kiosks to its retail partner and have installed them in New York, Los Angeles, Detroit, Philadelphia and San Francisco retail locations. With the successful incorporation of Rite Aid’s wellness and loyalty program, now known as “Plenti” onto the 3D Savings Center kiosks in New York and Los Angeles, we plan to continue to expand to 1,000 stores in Rite Aid’s top 10 demographic markets by the end of September 2017. The Company will earn advertising revenue from advertisements in Rite Aid.

 

ProDava 3D

 

DB Dava LLC, a Delaware limited liability company (“DB”), and the Company agreed to engage in a venture for the purpose of exploiting the Company’s technology and its agreement with a national pharmacy chain to place a number of its kiosks in stores. In June 2014, the Company and DB, caused ProDava LLC (“ProDava”) to be formed, and the parties entered into the ProDava LLC Agreement (the “LLC Agreement”) on June 30, 2014, which set out, among other things, the parties’ respective rights and obligations with respect to ProDava.

 

The two members of ProDava are the Company and DB. At the time of the formation of ProDava, the LLC Agreement originally provided that DB owned 80 percent of the membership interests of ProDava and the Company owned 20 percent of the membership interests of ProDava, assuming a $50,000,000 capital contribution by DB. Pursuant to the LLC Agreement, the Company made a capital contribution of $12,500,000, which represented the agreed upon value of a certain agreements which granted the Company rights to place kiosks in retail stores. There are no overlapping members of management who control and manage both the Company and DB Dava LLC and there are no significant shareholders of the Company who also hold a significant interest in DB Dava LLC.

 

The Company’s motivation to enter into the LLC Agreement was to use DB’s financing to place kiosks into retail stores. Pursuant to LLC Agreement, DB agreed to make a capital contribution of up to US $50,000,000. It was understood and agreed between the parties that the Company’s role in ProDava was to provide, among other things, the kiosks, the content, resources and the know-how as to the placement and maintenance of the kiosks in retail stores.

 

To that end, ProDava entered into a Professional Services Agreement, dated June 30, 2014 (the “PSA”) with the Company, whereby ProDava engaged the Company to provide services for ProDava with respect to the sourcing, due diligence, acquisition, management, construction and marketing of the kiosks financed and purchased by ProDava. As full compensation for rendering and performing such services under the PSA, the Company was entitled to receive from ProDava, the unreimbursed expenses incurred by the Company. It was agreed and understood that DB’s role in ProDava was to provide the funding necessary for the unreimbursable expenses and the production, manufacture and maintenance of the kiosks placed in stores. As a result of the ownership percentage in ProDava, DB would receive 80% of the profits of the ProDava from advertising related revenue less expenses.

 

ProDava 3D is purchasing 3D Savings Center kiosks, manufactured by Provision. These will be placed in high traffic aisles of nationally recognized retail stores, initially Rite Aid, with advertisements of consumer packaged products, other consumer goods manufacturers along with local/regional advertisers. Ad sales inventory will include marquee 3D hologram images, coupons, and other rewards and transactions of products sold in the stores (focused on new product introductions).

 

Provision’s contribution to ProDava 3D includes Provision’s know-how, management, and its agreement with the national retail pharmacy that will be the first target for the 3D Savings Center kiosk launch. Provision will be responsible for manufacturing, installation, service, maintenance, technical support, network management, advertising, marketing, and accounting of each 3D Savings Center kiosk for the joint venture. Provision will be compensated for rendering and performing all of these services. The advertising and other revenues generated from the 3D Savings Center kiosks will be divided among Provision and DB.

 

Lifestyle Ventures LLC

 

The Company also received a $900,000 deposit from Lifestyle Ventures LLC for the purchase and marketing of Provision’s 3D Savings Center kiosk to be installed in approved retail store chains. Lifestyle Ventures LLC is required to deposit an additional $1.1 million with an option to increase its investment up to $20 million. 

 

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Other Business Arrangements

 

The Company has signed a Master Collaboration Agreement with Intel Corporation to identify and collaborate on certain technical and marketing activities as contained in the agreement. Collaboration includes joint technical development and marketing activities as determined by the two companies.

 

The Company has signed a Master Service Agreement with Fujifilm Corporation to provide to Company and its customers with installation and maintenance serves to the Company’s 3D Savings Center Kiosks inside Rite Aid retail stores.

 

Competition

 

Currently, Provision’s competition is not other 3D companies that may exist in the marketplace, but traditional advertising media like television, radio, newspapers and magazines.  We also compete with companies that operate outdoor and Digital Out-Of-Home (DOOH) advertising media networks that can be seen at malls, gas stations, and retailers containing traditional 2D (two dimensional) TV screens or flat screens. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, billboard and public transport advertising companies.

 

The competition for ProVision’s patented (issued, approved and pending) and proprietary 3D floating image holographic technology includes alternative 3D displays currently in the marketplace:

 

Employees

 

As of May 18, 2017 we have eight employees. None of our employees is represented by a labor union. We have not experienced any work stoppages and we consider relations with our employees to be good. The company also uses independent contractors to support administration, marketing, sales and field support activities.

 

Research and Development

 

Research and Development Activities

 

At present, Provision’s patents and patent applications are supplemented by substantial intellectual property we are currently protecting as trade secrets and proprietary know-how. This includes matter related to all product lines. We expect to file additional patent applications on a regular basis in the future.

 

We believe that Provision’s intellectual property and expertise constitutes an important competitive resource, and we continue to evaluate the markets and products that are most appropriate to exploit this expertise. In addition, we maintain an active program of intellectual property protection, both to assure that the proprietary technology developed by us is appropriately protected and, where necessary, to assure that there is no infringement of Provision’s proprietary technology by competitive technologies.

 

Intellectual Property

 

ProVision’s floating image display systems project full-motion 3D digital streaming media 9”- 40” into space detached from the display unit into free space and should not be confused with autostereoscopic systems. Autostereoscopic 3D systems produced by various firms’ layer two or more LCD screens, or lenticular lens based screens, while utilizing filters and collumnators to provide the illusion of depth perception. Such systems are only capable of displaying digital content attached to layered screens with all images being contained within the actual display unit. Due to the inherent nature of this technology approach the end result of their product line results in the following characteristics: eye strain, nausea, low resolution, low brightness and poor quality imagery, all resulting in poor/low customer acceptance. The cost to produce custom and special content for these screens are excessively expensive and time consuming becoming a major hurdle to overcome for mass adoption. Their major advantage might be characterized by their “flat screens” and slightly wider viewing angles, however consumer acceptance has been limited due to the limitations and poor visual experience. Companies attempting to launch these screens include 3D Magnetec, Alisoscopy, Tridelity, and 3D Fusion. Companies that have tried to launch these types of screens, and have failed or ceased operations, include: Phillips, Sharp, and Newsight.

 

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RESULTS OF OPERATIONS

 

THREE MONTHS ENDED MARCH 31, 2017 COMPARED TO THREE MONTHS ENDED MARCH 31, 2016

 

The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations:

 

   Three Months Ended 
   March 31, 
   2017   2016 
REVENUES        
Advertising revenues  $185,317   $- 
Hardware revenues   -    19,494 
Hardware revenues – related party   -    1,677,462 
Service related revenues – related party   -    157,560 
Software revenues – related party   -    171,993 
TOTAL REVENUES   185,317    2,026,509 
COST OF REVENUES   55,272    1,654,592 
GROSS PROFIT   130,045    371,917 
EXPENSES          
General and administrative   833,681    722,162 
Research and development   37,934    119,407 
TOTAL EXPENSES   871,615    841,569 
LOSS FROM OPERATIONS   (741,570)   (469,652)
OTHER INCOME (EXPENSE)          
Derivative liability expense – insufficient shares   -    - 
Change in fair value of derivative   (18,584)   - 
Amortization of debt and warrant discount and financing costs   (690,998)   - 
Other income (expense)   -    (823)
Interest expense   (204,120)   (443,268)
TOTAL OTHER INCOME (EXPENSE)   (913,702)   (444,091)
NET LOSS  $(1,655,272)  $(913,743)

  

REVENUES

 

The Company recognizes revenues from hardware sales, advertising and from licensing, distribution and marketing agreements. Revenues for the quarter ended March 31, 2017 were $185,317, a decrease from $2,026,509 generated in the quarter ended March 31, 2016. The decrease in revenues was primarily from a decrease in related party sales. The related party revenue is for sales to ProDava 3D, LLC to purchase Provision’s 3D Savings Center kiosks for placement into retail stores. During the three ended March 31, 2017 the Company had one customer which accounted for 94%of the Company’s revenues. During the three ended March 31, 2016 the Company had one customer which accounted for 99% of the Company’s revenues.

 

COST OF REVENUES

 

Cost of revenues for the quarter ended March 31, 2017 was $55,272 from $1,654,592 incurred in the quarter ended March 31, 2016. Cost of revenues for the quarter ended March 31, 2017 decreased as a direct result of the minimal revenues.

 

OPERATING EXPENSES

 

The Company incurred $871,615 in operating expenses for the quarter ended March 31, 2017, an increase from $841,569 incurred during the quarter ended March 31, 2016 primarily as a result of an increase in travel related expenses and professional fees offset by reduced research and development projects and related expenses. General and administrative expenses for the quarter ended March 31, 2017 decreased primarily as a result of the reduced professional fees associated with required filings.

 

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OTHER EXPENSES 

 

The Company recorded additional $451,850 of interest expense and amortization of debt and warrant discounts and finance costs during the quarter ended March 31, 2017 compared to the comparable quarter in 2016, related to the convertible notes outstanding. Additionally, the Company recorded a $18,584 loss due to the change in fair value of the derivative during the three months ended March 31, 2017.

 

NET LOSS

 

The Company had a net loss of $1,655,272 for the quarter ended March 31, 2017 compared to net loss of $913,743 for the quarter ended March 31, 2016. The increase in net loss in the quarter ended March 31, 2017 was primarily a result of minimal revenues and increased interest expense and amortization of debt and warrant discounts and finance costs.

 

NINE MONTHS ENDED MARCH 31, 2017 COMPARED TO NINE MONTHS ENDED MARCH 31, 2016

 

   Nine Months Ended 
   March 31, 
   2017   2016 
REVENUES        
Advertising revenues  $344,017   $- 
Hardware revenues   110,195    50,660 
Hardware revenues – related party   1,196,552    4,531,287 
Service related revenues – related party   -    611,735 
Software revenues – related party   66,456    205,223 
TOTAL REVENUES   1,717,220    5,398,905 
COST OF REVENUES   1,896,255    4,476,652 
GROSS PROFIT (LOSS)   (179,035)   922,253 
EXPENSES          
General and administrative   2,350,220    1,471,810 
Research and development   257,838    216,306 
TOTAL EXPENSES   2,608,058    1,688,116 
LOSS FROM OPERATIONS   (2,787,093)   (765,863)
OTHER INCOME (EXPENSE)          
Derivative liability expense – insufficient shares   -    (85,960)
Change in fair value of derivative   43,834    - 
Gain on forgiveness of debt   -    597,312 
Loss on settlement of debt   (48,000)   - 
Amortization of debt and warrant discount and financing costs   (1,608,708)   - 
Other income (expense)   -    2,053 
Interest expense   (756,442)   (1,182,116)
TOTAL OTHER INCOME (EXPENSE)   (2,369,316)   (668,711)
NET LOSS  $(5,156,409)  $(1,434,574)

  

REVENUES

 

The Company recognizes revenues from hardware sales, advertising and from licensing, distribution and marketing agreements. Revenues for the nine months ended March 31, 2017 were $1,717,220, a decrease from $5,398,905 generated in the nine months ended March 31, 2016. The decrease in revenues was primarily from an increase in related party sales. The related party revenue is for sales to ProDava 3D, LLC to purchase Provision’s 3D Savings Center kiosks for placement into retail stores. During the nine months ended March 31, 2017 the Company had two customers which accounted for more than 10% of the Company’s revenues (74% and 19%). During the nine months ended March 31, 2016 the Company had one customer who accounted for more than 10% of the Company’s revenues (99%).

 

COST OF REVENUES

 

Cost of revenues for the nine months ended March 31, 2017 was $1,896,255 from $4,476,652 incurred in the nine months ended March 31, 2016. Cost of revenues for the fiscal nine months ended March 31, 2017 was a result of the uncollectibility of expenses paid on behalf of ProDava.

 

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OPERATING EXPENSES

 

The Company incurred $2,608,058 in operating expenses for the nine months ended March 31, 2017, an increase from $1,688,116 incurred during the nine months ended March 31, 2017 primarily as a result of a $904,538 increase in general and administrative expenses and increase in research and development expenses by $41,532. General and administrative expenses for the nine months ended March 31, 2017 increased primarily as a result of accounting and legal costs due to the Company completing several overdue SEC filings and additional travel expenses related to the supervision of the installations of kiosks during the nine months.

 

OTHER EXPENSES

 

The Company had various miscellaneous income and expenses. The largest gain was a gain of $597,312 during the nine months ended March 31, 2017 on extinguishment of debt of a previously recorded contingency loss after it filed a lawsuit and was awarded a default judgement in its favor from a dispute that started in 2004 with Betacorp Management, Inc.

 

The Company also recorded additional interest expense of $1,183,304 primarily related to the issuance of convertible notes during the nine months ended March 31, 2017. During the nine months ended March 31, 2016 the Company recorded a charge of $85,960 for the derivative liability resulting from the Company having insufficient shares for issued and outstanding common stock equivalents. The Company authorized additional shares during the nine months ending March 31, 2016. The Company recognized a gain of $43,834 for the nine months ended March 31, 2017 from the change in fair value of derivative as a result of fluctuating market prices of the Company’s common stock.

 

Additionally, the Company recorded a $48,000 loss due to the settlement of a debt during the nine months ended March 31, 2017.

 

NET LOSS:

 

The Company had a net loss of $5,156,409 for the nine months ended March 31, 2017 compared to net loss of $1,434,574 for the nine months ended March 31, 2016. The higher net loss for the nine months ended March 31, 2017 was primarily a result of the gain on forgiveness of debt partially offset by the uncollectibility of $320,073 of expenses paid on behalf of ProDava, higher interest expense and increased operating expenses.

 

Liquidity and Capital Resources

 

The financial statements in this Form 10-Q are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company had accumulated deficit at March 31, 2017 of $39,914,671. The Company has negative working capital of $11,446,531 as of March 31, 2017. The largest balances in current liabilities are for current portion of convertible debt, net ($6,292,293) accrued interest ($2,535,305) and unearned revenue ($2,057,607). The Company is in the process of negotiating with noteholders to convert accrued interest into long-term notes to reduce current liabilities and plans to ship goods to reduce the unearned revenue.

 

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required and, ultimately, to attain profitable operations. Management’s plan to eliminate the going concern situation include, but are not limited to, the raise of additional capital through issuance of debt and equity, improved cash flow management, aggressive cost reductions, and the creation of additional sales and profits across its product lines.

 

To raise cash on March 31, 2017, the Company accepted and entered into Subscription Agreements (the “Subscription Agreements”) for 13,333,339 shares of Company’s common stock with 15 accredited investors (the “Investors”) for an aggregate purchase price of $800,000 at a price of $0.06 per share. Each Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.09 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Warrants are valued at $154,933. Net cash received after fees of $20,000, the warrant valuation of $154,933 and a subscription receivable of $50,000 was $575,067.

 

The Company does have $637,629 in cash as of March 31, 2017 as a result of an issuance of convertible debt. The Company has sufficient cash to operate for the next 12 months. Failure to raise additional capital or improve its performance in the next 12 months, however, may cause the Company to curtail its business activities and expansion plans within the next twelve months.

 

During the nine months ended March 31, 2017, the Company used $2,667,619 of cash for operating activities compared to a use of $1,521,623 in the nine months ended March 31, 2016. The increase in cash used for operating activities was due a higher net loss and the use of cash to lower accounts payable and accrued liabilities and the effect of higher accounts receivable due to higher sales. Cash from financing activities was $1,129,705 in the nine months ended March 31, 2017 compared to cash from financing activities of $3,422,125 in the nine months ended March 31, 2016. The increase in cash provided by financing activities was primarily due to proceeds from the issuance of convertible notes. During the nine months ended March 31, 2016, the company used $13,750 in investing activities for the purchase of an immaterial amount of fixed assets.

 

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DB Dava LLC, a Delaware limited liability company (“DB”), and the Company agreed to engage in a venture for the purpose of exploiting the Company’s technology and its agreement with a national pharmacy chain to place a number of its kiosks in stores. In June 2014, the Company and DB, caused ProDava LLC (“ProDava”) to be formed, and the parties entered into the ProDava LLC Agreement (the “LLC Agreement”) on June 30, 2014, which set out, among other things, the parties’ respective rights and obligations with respect to ProDava.  

 

The two members of ProDava are the Company and DB. At the time of the formation of ProDava, the LLC Agreement originally provided that DB owned 80 percent of the membership interests of ProDava and the Company owned 20 percent of the membership interests of ProDava, assuming a $50,000,000 capital contribution by DB. Pursuant to the LLC Agreement, the Company made a capital contribution of $12,500,000, which represented the agreed upon value of a certain agreements which granted the Company rights to place kiosks in retail stores. There are no overlapping members of management who control and manage both the Company and DB Dava LLC and there are no significant shareholders of the Company who also hold a significant interest in DB Dava LLC.

 

The Company’s motivation to enter into the LLC Agreement was to use DB’s financing to place kiosks into retail stores. Pursuant to LLC Agreement, DB agreed to make a capital contribution of up to US$50,000,000. It was understood and agreed between the parties that the Company’s role in ProDava was to provide, among other things, the kiosks, the content, resources and the know-how as to the placement and maintenance of the kiosks in retail stores.

 

To that end, ProDava entered into a Professional Services Agreement, dated June 30, 2014 (the “PSA”) with the Company, whereby ProDava engaged the Company to provide services for ProDava with respect to the sourcing, due diligence, acquisition, management, construction and marketing of the kiosks financed and purchased by ProDava. As full compensation for rendering and performing such services under the PSA, the Company was entitled to receive from ProDava, the unreimbursed expenses incurred by the Company. It was agreed and understood that DB’s role in ProDava was to provide the funding necessary for the unreimbursable expenses and the production, manufacture and maintenance of the kiosks placed in stores. As a result of the ownership percentage in ProDava, DB would receive 80% of the profits of the ProDava from advertising related revenue less expenses.

 

In the best interests of shareholders and to reflect expenses paid on behalf of ProDava, the Company initiated an action against DB in November 2016 seeking declaratory judgment. After the execution of the LLC Agreement, both DB and the Company performed their respective duties. The Company caused numerous kiosks to be manufactured for placement in retail stores in accordance with the PSA, maintained and serviced these kiosks. DB provided funds to ProDava for, the production of kiosks and for expenses incurred by the Company in connection with the maintenance of servicing of the kiosks. In total, DB provided sums totaling $6.5 million. In the first quarter of 2016, DB ceased providing the funding required by the LLC Agreement. DB advised The Company that DB was analyzing information and that it would make a determination as to whether it would continue to provide funding in accordance with the LLC Agreement. The Company has been incurring the reimbursable expenses that were to be reimbursed by DB. The LLC Agreement provides that, in the event that DB fails to fund any portion of the total amount is was required to provide in accordance with the terms of the LLC Agreement, the LLC Agreement provides for the recalculation of the parties’ membership interests in ProDava. The Company filed an action in the Supreme Court of the State of New York in New York County (Index No. 656127/2016) to seed to recalculate the ownership percentage of ProDava. DB filed a motion to dismiss and the Company filed an action opposing such motion. No claims were made against the Company. If successful, the Company will own a greater percentage of ProDava. If unsuccessful, the Company will have to continue to fund ProDava’s expenses until advertising income exceeds expenses.

 

On February 6, 2017, the Company issued a $158,500 convertible debenture. The note bears interest at 12%, is due on November 12, 2017 and, if not paid by August 6, 2017, is convertible into shares of the Company’s common stock at 61% of the average of the lowest three trading prices during the ten days prior to the conversion date.

 

On March 2, 2017, the Company issued a $225,000 convertible debenture. The note does not bear interest but was issued with $20,000 of original issue discount. The note is due on September 2, 2017 and, if not paid by September 2, 2017, is convertible into shares of the Company’s common stock at 60% of the average of the lowest three trading prices during the twenty days prior to the conversion date.

 

On March 31, 2017, the Company accepted and entered into Subscription Agreements (the “Subscription Agreements”) for 13,333,339 shares of Company’s common stock with 15 accredited investors (the “Investors”) for an aggregate purchase price of $800,000 at a price of $0.06 per share. Each Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.09 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Warrants are valued at $154,933. Net cash received after fees of $20,000, the warrant valuation of $154,933 and a subscription receivable of $50,000 was $575,067.

 

During February 2017, the Company entered into four promissory notes with investors pursuant to which the Company issued four promissory notes in the principal amount of $61,500. The notes accrue interest at a rate of 5% per annum and mature in 120 days. As additional consideration, the Company issued the investors 1,050,000 shares of common stock. The value of the stock consideration was limited to the value of the promissory notes, $61,500. The stock consideration was recorded as a discount against the notes. For the three and nine months ended March 31, 2017 and 2016, $20,938 and $-0- and $20,937 and $-0-, respectively, was expensed in the statement of operations as amortization of debt discount related to the notes and show as interest expenses. The unamortized debt discount was $40,563 and $-0- at March 31, 2017 and June 30, 2017, respectively.

 

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CRITICAL ESTIMATES AND JUDGMENTS

 

The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates its estimates and judgments, including those related to receivables and accrued expenses. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable based on the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of the Company’s intangible assets, the amount of stock compensation, and the amount of accrued liabilities that are not readily attainable from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the unaudited condensed consolidated financial statements.

  

CRITICAL ACCOUNTING POLICIES

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments, with an original maturity of nine months or less when purchased, to be cash equivalents. As of March 31, 2017 and June 30, 2016, the Company’s cash and cash equivalents were on deposit in federally insured financial institutions, and at times may exceed federally insured limits.

 

Accounts Receivable

 

Accounts receivable are not collateralized and interest is not accrued on past due accounts. Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. After management has exhausted all collection efforts, management writes off receivables and the related reserve. Additionally, the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial difficulties. Actual bad debt results could differ materially from these estimates.

 

Inventories

 

Inventories are stated at the lower of cost (first-in, first-out) or market. The Company periodically reviews its inventories for indications of slow movement and obsolescence and records an allowance when it is deemed necessary.

 

Property and Equipment

 

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses are recognized based on estimated fair values if the sum of expected future undiscounted cash flows of the related assets is less than their carrying values.

 

Intangibles

 

Intangibles represent primarily costs incurred in connection with patent applications. Such costs are amortized using the straight-line method over the useful life of the patent once issued, or expensed immediately if any specific application is unsuccessful.

 

Revenue Recognition

 

The Company recognizes gross sales when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collection is probable. It recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). Revenue from licensing, distribution and marketing agreements is recognized over the term of the contract. Revenue from the sale of hardware is recognized when the product is complete and the buyer has accepted delivery. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

 

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Cost of Revenue

 

Cost of revenue in respect to sale of hardware consists of costs associated with manufacturing of 3D displays, Kiosk machine, transportation, and other costs that are directly related to a revenue-generating. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement.

 

Depreciation and Amortization

 

The Company depreciates its property and equipment using the straight-line method with estimated useful lives from three to seven years. For federal income tax purposes, depreciation is computed using an accelerated method.

 

Shipping and Handling Costs

 

The Company’s policy is to classify shipping and handling costs as a component of Costs of Revenues in the Statement of Operations.

 

Unearned Revenue

 

The Company bills customers in advance for certain of its services. If the customer makes payment before the service is rendered to the customer, the Company records the payment in a liability account entitled customer prepayments and recognizes the revenue related to the services when the customer receives and utilizes that service, at which time the earnings process is complete. The Company recorded $2,057,607 and $3,419,616 as of March 31, 2017 and June 30, 2016, respectively as deferred revenue.

 

Significant Customers

 

During the three ended March 31, 2017 the Company had one customer which accounted for more than 10% of the Company’s revenues (94%). During the nine months ended March 31, 2017 the Company had two customers which accounted for more than 10% of the Company’s revenues (74% and 19%). During the three and nine months ended March 31, 2016 the Company had one customer which accounted for more than 10% of the Company’s revenues (99% and 99%, respectively).  

 

Research and Development Costs

 

The Company charges all research and development costs to expense when incurred. Manufacturing costs associated with the development of a new process or a new product are expensed until such times as these processes or products are proven through final testing and initial acceptance by the customer.

 

For the three months ended March 31, 2017 and 2016, the Company incurred $37,934 and $119,407, respectively for research and development expense which are included in the unaudited condensed consolidated statements of operations. For the nine months ended March 31, 2017 and 2016, the Company incurred $257,838 and $216,306, respectively for research and development expense which are included in the unaudited condensed consolidated statements of operations.

 

Fair Value of Financial Instruments

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2017 and June 30, 2016. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.

 

The Company uses fair value measurements under the three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure for fair value measures. The three levels are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

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   Carrying    Fair Value Measurements 
Using Fair Value Hierarchy
 
   Value   Level 1   Level 2   Level 3 
Convertible notes (net of discount) – March 31, 2016  $6,568,572   $-   $-   $6,568,572 
Convertible notes (net of discount) – June 30, 2016  $6,415,371   $      -   $       -   $6,415,371 
Derivative liability – March 31, 2017  $427,824   $-   $-   $427,824 
Derivative liability – June 30, 2016  $188,128   $-   $-   $188,128 

 

The following table provides a summary of the changes in fair value of the Company’s Promissory Notes, which are both Level 3 liabilities as of March 31, 2017:

 

Balance at June 30, 2016  $6,415,371 
Issuance of notes – net of discount   355,000 
Derivative liability on issuance of notes   (304,906)
Accretion of debt and warrant discount and prepaid financing costs   1,483,437 
Issuance of shares of common stock for convertible debt   (1,380,330)
Balance March 31, 2017  $6,568,572 

 

The Company determined the value of its convertible notes using a market interest rate and the value of the warrants and beneficial conversion feature issued at the time of the transaction less the accretion. There is no active market for the debt and the value was based on the delayed payment terms in addition to other facts and circumstances at the end of March 31, 2017 and June 30, 2016. 

 

Derivative Financial Instruments

 

The Company evaluates our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Certain of the Company’s embedded conversion features on debt and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to settle these outstanding contracts, or due to other rights connected with these contracts, such as registration rights. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the latest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the warrants are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date. 

 

The Company estimates the fair value of these instruments using the Black-Scholes option pricing model and the intrinsic value if the convertible notes are due on demand.

 

We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price “reset” adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock (“ASC 815-40”). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. Any change in fair value during the period recorded in earnings as “Other income (expense) - gain (loss) on change in derivative liabilities.”

 

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The following table represents the Company’s derivative liability activity for the period ended:

 

Balance at June 30, 2016  $188,128 
Derivative liability reclass into additional paid in capital upon notes conversion   (125,710)
Initial measurement at issuance date of the notes   409,240 
Change in fair value of derivative at period end   (43,834)
Balance March 31, 2017  $427,824 

 

Commitments and Contingencies:

 

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, environment liability and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated.

 

Basic and Diluted Income (Loss) per Share

 

Basic income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of March 31, 2017, the Company had debt instruments, options and warrants outstanding that can potentially be converted into approximately 116,907,345 shares of common stock.

 

Anti-dilutive securities not included in diluted loss per share relating to:    
Warrants outstanding   333,333 
Options vested and outstanding   - 
Convertible debt and notes payable including accrued interest   17,454,009 
      

Material Equity Instruments

 

The Company evaluates stock options, stock warrants and other contracts (convertible promissory note payable) to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of  ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity (“ASC 815”).  The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative financial instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative financial instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC 815 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

 

Certain of the Company’s embedded conversion features on debt and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 840-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the earliest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the convertible notes or warrants are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.

 

During September 2015, the Company had recorded a charge for the derivative liability resulting from the Company having insufficient shares of $85,960. This derivative liability is a result of the embedded conversion features of the notes payable to convert 18,231,003 shares, at fixed prices ranging from $0.04 to $1.00 per share. The liability was recorded at the fair market value, which estimated value, was based upon the remaining contractual life of the convertible notes payable (the host instrument), using the Black-Scholes pricing model, and since these earlier notes had reached maturity and were now due on demand the intrinsic value was also considered. The conversion exceeded the market price accordingly the intrinsic value was also zero. Accordingly the reclassification of the value of these derivatives had no impact on the Company’s financial statements. On December 31, 2015, the Company amended its Articles of Incorporation by filing a Certificate of Amendment with the Secretary of State of Nevada to effect an increase in the number of the Company’s authorized common shares from 100,000,000 to 200,000,000. As such, the related derivative liability has been revalued to $0 at March 31, 2017.

 

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On June 30, 2016, the Company again amended its Articles of Incorporation by filing a Certificate of Amendment with the Secretary of State of Nevada to effect an increase in the number of the Company’s authorized common shares from 200,000,000 to 300,000,000. The increase in the authorized number of shares of common stock was approved by the Board of Director of the Company on June 30, 2016 and holders of more than 50% of the voting power of the Company’s capital stock. The Company’s ticker symbol and CUSIP remain unchanged.

 

Recent Accounting Pronouncements 

 

In January 2016, the FASB issued an accounting standard update which requires, among other things, that entities measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value, with changes in fair value recognized in earnings. Under the standard, entities will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available for sale as a component of other comprehensive income. For equity investments without readily determinable fair values the cost method of accounting is also eliminated, however subject to certain exceptions, entities will be able to elect to record equity investments without readily determinable fair values at cost, less impairment and plus or minus adjustments for observable price changes, with all such changes recognized in earnings. This new standard does not change the guidance for classifying and measuring investments in debt securities and loans. The standard is effective for us on July 1, 2018 (the first quarter of our 2019 fiscal year). The Company is currently evaluating the anticipated impact of this standard on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.

 

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In June 2016, the FASB Issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” and clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in Topic 606 is retrospectively applied. The amendments do not change the core principle of the guidance in Topic 606. The effective dates are the same as those for Topic 606. The Company has not yet determined the impact of ASU 2016-12 on its consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, in an effort to reduce the diversity of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company has not yet determined the impact of ASU 2016-15 on its consolidated financial statements.

 

In October 2016, the FASB issued ASU No 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted. The Company has not yet determined the impact of ASU 2016-16 on its consolidated financial statements.

 

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has not yet determined the impact of ASU 2017-01 on its consolidated financial statements.

 

ECONOMY AND INFLATION

 

Except as disclosed herein, we have not experienced any significant cancellation of orders due to the downturn in the economy and only a small number of customers requested delays in delivery or production of orders in process. Our management believes that inflation has not had a material effect on our results of operations.

 

OFF-BALANCE SHEET AND CONTRACTUAL ARRANGEMENTS

 

We do not have any off-balance sheet or contractual arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

  

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our Company’s Principal Executive Officer and Principal Financial Officer, of the design and effectiveness of our “disclosure controls and procedures” (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board are as follows: (1) lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The Company intends to establish policies and procedures that will remediate the related material weaknesses.

 

Changes in Internal Controls Over Financial Reporting

 

There have been no changes in our internal controls over financial reporting during our last fiscal three months that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results. 

 

On August 26, 2004, in order to protect its legal rights and in the best interest of the shareholders at large, the Company filed, in the Superior Court of California, a complaint alleging breach of contract, rescission, tortuous interference and fraud with Betacorp Management, Inc. In an effort to resolve all outstanding issues, the parties agreed, in good faith, to enter into arbitration in the State of Texas, domicile of the defendants. On August 11, 2006, a judgment was awarded against the Company in the sum of $592,312. The Company believes the judgment is without merit and has filed an appeal. A contingency loss of $592,312 was charged to operations during the year ended June 30, 2007. Subsequently, The Company filed a counter lawsuit and was awarded a default judgement in its favor, and as such removed the contingency loss during the year ended June 30, 2016.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the nine months ended March 31, 2017, the Company issued 4,538,966 shares of common stock in exchange for consulting services valued at $691,577, out of which $254,166 relates to prior period services.

 

During the nine months ended March 31, 2017 the Company issued 15,124,939 shares of its common stock in conversion of $1,555,581 debt and accrued interest.

 

During January 2017 the Company settled a prior debt. According to the settlement agreement, the Company is required to issue 400,000 shares of common stock to the recipient. The shares were valued at $48,000 and the Company has recorded the same as expense in the statement of operations for the nine months ended March 31, 2017. 

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

31.1   Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS **   XBRL Instance Document
101.SCH **   XBRL Taxonomy Extension Schema Document
101.CAL **   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **   XBRL Taxonomy Extension Label Linkbase Document
101.PRE **   XBRL Taxonomy Extension Presentation Linkbase Document

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

In accordance with the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  PROVISION HOLDING, INC.
   
Dated: May 22, 2017 By:  /s/ Curt Thornton
    Name: Curt Thornton  
Title:   Chief Executive Officer
    (Principal Executive Officer and
Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

/s/ Curt Thornton  
Curt Thronton  
Chief Executive Officer  
(Principal Executive Officer and  
Principal Financial Officer)  
May 22, 2017  

 

/s/ Robert Ostrander  
Robert Ostrander  
Vice President  
May 22, 2017  

 

 

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