The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER
30, 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 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 September 30, 2016 of
$36,381,789. The Company has negative working capital of $8,963,910 as of September 30, 2016. 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 months ended September 30, 2016 are
not necessarily indicative of the results for the fiscal year ending June 30, 2017.
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 months ended September 30, 2016 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 September 30, 2016 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.
NOTE 1
|
|
ORGANIZATION AND BASIS OF PRESENTATION (Continued)
|
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.
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 $3,369,774 and $3,419,616 as of
September 30, 2016 and June 30, 2016, respectively as deferred revenue.
Significant Customers
During the three months ended
September 30, 2016 the Company had one customer which accounted for more than 10% of the Company’s revenues (85%)During the
three months ended September 30, 2015 the Company had one customer which accounted for more than 10% of the Company’s revenues
(96%).
NOTE 1
|
|
ORGANIZATION AND BASIS OF PRESENTATION (Continued)
|
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 September 30, 2016
and 2015, the Company incurred $150,132 and $32,069, 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 September 30, 2016 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 Value
|
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Convertible notes (net of discount) – September 30, 2016
|
|
$
|
6,197,133
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,197,133
|
|
Convertible notes (net of discount) – June 30, 2016
|
|
$
|
6,415,371
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,415,371
|
|
Derivative liability – September 30, 2016
|
|
$
|
104,446
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
104,446
|
|
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 September 30, 2016:
Balance at June 30, 2016
|
|
$
|
6,415,371
|
|
Accretion of debt and warrant discount and prepaid financing costs
|
|
|
458,855
|
|
Issuance of shares of common stock for convertible debt
|
|
|
(677,093
|
)
|
Balance September 30, 2016
|
|
$
|
6,197,133
|
|
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 September 30, 2016 and June 30, 2016.
NOTE 1
|
|
ORGANIZATION AND BASIS OF PRESENTATION (Continued)
|
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.”
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
|
|
|
(23,825
|
)
|
Change in fair value of derivative at period end
|
|
|
(59,857
|
)
|
Balance September 30, 2016
|
|
$
|
104,446
|
|
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.
NOTE 1
|
|
ORGANIZATION AND BASIS OF PRESENTATION (Continued)
|
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 September 30, 2016, the Company had debt instruments, options and warrants
outstanding that can potentially be converted into approximately 108,318,807 shares of common stock.
Anti-dilutive securities not included in diluted loss per share relating to:
|
|
|
|
Warrants outstanding
|
|
6,476,189
|
|
Options vested and outstanding
|
|
|
10,000
|
|
Convertible debt and notes payable including accrued interest
|
|
|
3,954,425
|
|
|
|
|
10,440,614
|
|
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.
NOTE 1
|
|
ORGANIZATION AND BASIS OF PRESENTATION (Continued)
|
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 2015-14
,
for
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 2015-14
,
for
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.
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:
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
36,701
|
|
|
$
|
26,619
|
|
Finished goods
|
|
|
3,652,485
|
|
|
|
3,652,485
|
|
|
|
|
3,689,186
|
|
|
|
3,679,104
|
|
Less Inventory reserve
|
|
|
(157,365
|
)
|
|
|
(157,365
|
)
|
Total
|
|
$
|
3,531,821
|
|
|
$
|
3,521,739
|
|
At September 30, 2016 and June 30, 2016, the inventory reserve remained
unchanged, respectively.
During the three months ended September 30,
2016, the Company prepaid certain expenses related to software licensing fees and legal expenses. At September 30, 2016 and June
30, 2016, $542,927 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:
|
|
September 30,
2016
|
|
|
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
|
|
|
(31,721
|
)
|
|
|
(29,429
|
)
|
Total
|
|
$
|
24,444
|
|
|
$
|
26,736
|
|
The aggregate depreciation charge to operations
was $2,292 and $-0- for the three months ended September 30, 2016 and 2015, 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 $1,080,924 and $1,287,109 in financing costs at September 30, 2016
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 $206,185 and $58,079 for three months period ended September 30, 2016 and 2015, respectively.
NOTE 6
|
|
INTANGIBLES, net of accumulated amortization
|
Intangibles consist of the following:
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Patents in process
|
|
$
|
142,116
|
|
|
$
|
142,116
|
|
Patents issued
|
|
|
58,037
|
|
|
|
58,037
|
|
|
|
|
200,153
|
|
|
|
200,153
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization
|
|
|
(28,052
|
)
|
|
|
(27,428
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,101
|
|
|
$
|
172,725
|
|
The aggregate amortization expense charged to
operations was $624 and $624 for three months ended September 30, 2016 and 2015, respectively. The amortization policies followed
by the Company are described in Note 1.
As of September 30, 2016, the estimated future amortization expense
related to finite-lived intangible assets was as follows:
Fiscal year ending,
|
|
|
|
June 30, 2017
|
|
$
|
1,872
|
|
June 30, 2018
|
|
|
2,496
|
|
June 30, 2019
|
|
|
2,496
|
|
June 30, 2020
|
|
|
2,496
|
|
June 30, 2021
|
|
|
2,496
|
|
Thereafter
|
|
|
160,245
|
|
|
|
|
|
|
Total
|
|
$
|
172,101
|
|
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 three months ended September 30, 2016. The remaining balance is $-0- and $16,795 at September 30, 2016
and June 30, 2016, respectively.
Convertible debt consists of the following:
|
|
September 30, 2016
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Convertible notes payable, annual interest rate of 10%, due dates range from May 2010 to February 2019 and convertible into common stock at a rate of $0.06 to $1.00 per share.
|
|
$
|
7,947,923
|
|
|
$
|
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
|
|
|
(1,080,924
|
)
|
|
|
(1,287,109
|
)
|
Unamortized warrants discount to notes
|
|
|
(292,694
|
)
|
|
|
(363,663
|
)
|
Unamortized debt discount
|
|
|
(1,127,172
|
)
|
|
|
(1,308,872
|
)
|
|
|
|
6,197,133
|
|
|
|
6,415,371
|
|
Less current portion
|
|
|
(4,928,968
|
)
|
|
|
(609,905
|
)
|
Convertible debt, net of current portion and debt discount
|
|
$
|
1,268,165
|
|
|
$
|
5,805,466
|
|
During
the period ended September 30, 2016 the few holders of the Note converted $699,575 including accrued interest value into 6,761,312
shares of the Company's common stock. The determined fair value of the debt derivatives of $23,825 was reclassified into equity
during the period ended September 30, 2016.
For the three ended September 30, 2016 and 2015,
$70,970 and $6,710 were expensed in the statement of operation as amortization of warrant discount and shown as interest expenses,
respectively. For the three ended September 30, 2016 and 2015, $181,700 and $48,584 was amortized of debt discount and shown as
interest expenses, respectively.
The aggregate amortization of prepaid
financing cost charged to operations was $206,185 and $58,079 for three months period ended September 30, 2016 and 2015, respectively.
Accrued and unpaid interest for convertible
notes payable at September 30, 2016 and June 30, 2016 was $2,542,502 and $1,678,138, respectively.
For the three ended September 30, 2016 and 2015,
$234,348 and $75,818, 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.
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 three ended September 30, 2016 and
2015, the Company recorded the loss (gain) in fair value of derivative ($59,857) and $-0-, respectively.
For the three ended September 30, 2016 and 2015,
$6,399- 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
|
|
|
(23,825
|
)
|
Change in fair value of derivative at period end
|
|
|
(59,857
|
)
|
Balance September 30, 2016
|
|
$
|
104,446
|
|
At September 30, 2016 and June 30, 2016, $90,000 and $90,000, respectively,
of debt was outstanding with an interest rate of 8%.
Accrued and unpaid interest for these notes
payable at September 30, 2016 and June 30, 2016 were $27,550 and $26,528, respectively.
For the three ended September 30, 2016 and 2015,
$1,022 and $1,705, was charged as interest on debt and shown as interest expenses, respectively.
Lease Agreement - The Company leases its office
space under a month-to-month lease. Rent expense was $23,025 and $18,456 for the three months ended September 30, 2016 and 2015,
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 nine months
|
|
$
|
62,095
|
|
2018
|
|
|
83,900
|
|
2019
|
|
|
62,925
|
|
|
|
|
|
|
Total
|
|
$
|
209,750
|
|
The Company is delinquent in remitting its payroll
taxes to the applicable governmental authorities. Total due, including estimated penalties and interest is $575,589 and $590,799
at September 30, 2016 and June 30, 2016, respectively.
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 September 30, 2016. Preferred shares issued and outstanding
at September 30, 2016 and June 30, 2016 were 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.
NOTE 12
|
|
EQUITY (Continued)
|
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.
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.
As of September 30, 2016 and June 30, 2016,
there were 97,070,603 and 89,242,624 shares of common stock issued and outstanding, respectively.
During the three months ended September 30,
2016, the Company issued 1,066,667 shares of common stock in exchange for consulting services valued at $248,333 and recorded
166,666 shares to be issued for services valued at $39,167.
During the three months ended September 30, 2016 the Company issued
6,761,312 shares of its common stock in payment of $699,575 debt and accrued interest.
Warrants
Warrant activity during the three months ended
September 30, 2016, 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
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(1,050,000
|
)
|
|
|
0.05
|
|
|
|
|
|
Outstanding and exercisable at September 30, 2016
|
|
|
25,346,958
|
|
|
$
|
0.14
|
|
|
$
|
3,548,574
|
|
Stock Option Plan
Stock option activity during the three months
ended September 30, 2016 is as follows:
|
|
Stock Options
|
|
|
Weighted-Average Exercise Price
|
|
|
Aggregate Intrinsic
Value
|
|
|
Outstanding at June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
50,000
|
|
|
|
0.23
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at September 30, 2016
|
|
|
50,000
|
|
|
$
|
0.23
|
|
|
$
|
-
|
|
|
Exercisable at September 30, 2016
|
|
|
10,000
|
|
|
$
|
0.23
|
|
|
$
|
-
|
|
|
Un-exercisable at September 30, 2016
|
|
|
40,000
|
|
|
$
|
0.23
|
|
|
$
|
-
|
|
NOTE 12
|
|
EQUITY (Continued)
|
The Company has one stock option plan: The
Provision Interactive Technologies, Inc. 2002 Stock Option and Incentive Plan, (the “Plan”). As of September
30, 2016, 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 September 30, 2016, 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 three months ended September 30, 2016
and 2015, the Company issued 50,000 and -0- options and recorded $1,320 and $-0- of stock compensation expense, respectively.
The fair value of options exercised in
the three months ended September 30, 2016 and 2015 was approximately $0 at each period.
As of September 30, 2016, there was $5,296
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 three month period ended September 30, 2016 was stated at market price on the
date of vested.
During the three month periods ended September 30, 2016 and 2015, the Company recorded expenses of $180,000 and $-0-, respectively,
related to restricted stock vested to non-employees and the same was accounted for under “stock to be issued” in accompanying
unaudited condensed consolidated balance sheet.
As of September
30, 2016 and December 31, 2015, there were 500,000 and -0- restricted stock unvested, respectively.
As of September
30, 2016, there were 1 million restricted stock vested, however, the Company has not issued till date and recorded as stock to
be issuable during the period.
NOTE 13
|
|
RELATED ENTITY ACTIVITIES
|
ProDava 3D
On June 30, 2014 the Company entered into an
agreement with DB Dava, LLC (“DB”) to help the Company launch the 3D network in Rite Aid. The agreement creates a newly-formed
entity, ProDava 3D, LLC (“ProDava 3D”), to purchase Provision’s 3D Savings Center kiosks for placement into Rite
Aid stores. ProDava 3D may purchase up to $50 million in 3D Savings Center kiosks. The agreement calls for an initial purchase
of $2 million of 3D Savings Center kiosks. The Company will generate revenues and gross profit from the sale of machines to ProDava
3D. The Company will also earn advertising revenue from advertisements in Rite Aid earned by ProDava 3D.
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.
For the
three months ended
September 30
, 2016 and 2015 total revenue includes $49,842 and
$1,118,925, respectively, revenue from a related party.
Also,
total unearned revenue as of
September 30
, 2016 of $3,369,774 includes $2,453,159
advance for sales order received from a related party.
NOTE 13
|
|
RELATED ENTITY ACTIVITIES (Continued)
|
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.
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.
NOTE 15
|
|
SUBSEQUENT EVENTS
|
On October 28, 2016, the Company issues
1,050,000 shares of its common stock at $0.10 per shares for partial conversion of convertible notes in the amount of $105,000.