NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 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 March
31, 2016 of $29,990,020. The Company has negative working capital of $4,002,947 as of March 31, 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, 2015 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, 2015 included in Provision’s Annual Report on Form 10-K filed
with the SEC on October 13, 2015. 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, 2016 are not necessarily indicative of the results for the fiscal year
ending June 30, 2016.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 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, 2016 compared to what was previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 2015.
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 nine months or less when purchased, to be cash equivalents.
As of March 31, 2016 and June 30, 2015, 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.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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 $2,182,181 and $2,241,820
as of March 31, 2016 and June 30, 2015, respectively as deferred revenue.
Significant
Customers
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). During the three and nine months ended March 31, 2015 the Company had one customer
which accounted for more than 10% of the Company’s revenues (73% and 80%, respectively).
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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 March 31,
2016 and 2015, the Company incurred $119,407 and $31,250, respectively for research and development expense which are included
in the unaudited condensed consolidated statements of operations. For the nine months ended March 31, 2016 and 2015, the Company
incurred $216,306 and $95,751, 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, 2016 and June 30, 2015. 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) – March 31, 2016
|
|
$
|
7,135,761
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,135,761
|
|
Convertible notes (net of discount) – June 30, 2015
|
|
$
|
3,570,829
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,570,829
|
|
Derivative liability – March 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liability – June 30, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2016:
Balance at June 30, 2015
|
|
$
|
3,570,829
|
|
Issuance and extension of notes– net of discount
|
|
|
3,500,646
|
|
Accretion of debt and warrant discount
|
|
|
201,786
|
|
Re-class to notes payable and debt settlement payable
|
|
|
–
|
|
Issuance of shares of common stock for convertible debt
|
|
|
(110,000
|
)
|
Payments on convertible notes payable
|
|
|
(27,500
|
)
|
Balance March 31, 2016
|
|
$
|
7,135,761
|
|
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, 2016 and June 30,
2015.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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, 2015
|
|
$
|
-
|
|
Derivative liability – insufficient shares
|
|
|
85,960
|
|
Derivative liability – reclass into additional paid in capital due to sufficient shares
|
|
|
(85,960
|
)
|
Initial measurement at issuance date of the notes
|
|
|
182,701
|
|
Derivative liability reclass into additional paid in capital upon notes conversion
|
|
|
(182,701
|
)
|
Balance March 31, 2016
|
|
$
|
-
|
|
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.
At
March 31, 2016 and June 30, 2015, loss for contingency payable was $-0- and $592,312, respectively.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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 March 31, 2016, the Company had debt
instruments, options and warrants outstanding that can potentially be converted into approximately 93,143,366 shares of
common stock. 88,347,399 of these shares are included in the computation as their effect would be dilutive.
Anti-dilutive securities not included in diluted loss per share relating to:
|
|
|
|
Warrants outstanding
|
|
-
|
|
Convertible debt and notes payable including accrued interest
|
|
|
4,795,967
|
|
|
|
|
4,795,967
|
|
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, 2016.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
334,771
|
|
|
$
|
262,393
|
|
Work in process
|
|
|
–
|
|
|
|
–
|
|
Finished goods
|
|
|
1,207,066
|
|
|
|
1,372,239
|
|
|
|
|
1,541,837
|
|
|
|
1,634,632
|
|
Less Inventory Reserve
|
|
|
(157,365
|
)
|
|
|
(157,365
|
)
|
Total
|
|
$
|
1,384,472
|
|
|
$
|
1,477,267
|
|
During
the three and nine months ended March 31, 2016 and 2015, the inventory reserve remained unchanged, respectively.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
During the nine months ended March 31, 2016,
the Company prepaid certain expenses related to software licensing fees and legal expenses. At March 31, 2016, $126,298 of these
expenses remains to be amortized over the useful life through October 2016.
NOTE 4
|
|
PROPERTY
and EQUIPMENT, net
|
Equipment
consists of the following:
|
|
March 31,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
12,492
|
|
|
$
|
12,492
|
|
Computer equipment
|
|
|
25,430
|
|
|
|
11,680
|
|
Equipment
|
|
|
4,493
|
|
|
|
4,493
|
|
|
|
|
42,415
|
|
|
|
28,665
|
|
Less accumulated depreciation
|
|
|
(28,665
|
)
|
|
|
(28,665
|
)
|
Total
|
|
$
|
13,750
|
|
|
$
|
–
|
|
The aggregate depreciation charge to operations was $-0- and -0-, and $-0- and $107 for the three and nine months ended March
31, 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 $1,003,856 and $457,886 in financing costs at March 31, 2016 and
June 30, 2015, respectively.
Prepaid financing costs are presented with the net convertible debt as appropriate.
NOTE 6
|
|
INTANGIBLES,
net of accumulated amortization
|
Intangibles
consist of the following:
|
|
March 31,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
Patents in process
|
|
$
|
124,016
|
|
|
$
|
124,016
|
|
Patents issued
|
|
|
58,037
|
|
|
|
58,037
|
|
|
|
|
182,053
|
|
|
|
182,053
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization
|
|
|
(26,804
|
)
|
|
|
(24,932
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
155,249
|
|
|
$
|
157,121
|
|
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, 2016 and 2015, respectively. The amortization policies followed by the Company are described in Note 1.
As
of March 31, 2016, the estimated future amortization expense related to finite-lived intangible assets was as follows:
Fiscal
year ending,
|
|
|
|
June
30, 2016 (remaining three months)
|
|
$
|
624
|
|
June
30, 2017
|
|
|
2,496
|
|
June
30, 2018
|
|
|
2,496
|
|
June
30, 2019
|
|
|
2,496
|
|
June
30, 2020
|
|
|
2,496
|
|
Thereafter
|
|
|
144,641
|
|
|
|
|
|
|
Total
|
|
$
|
155,249
|
|
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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 $151,065 on this debt during the nine months ended March 31, 2016. The remaining balance is $67,150
and $218,215 at March 31, 2016 and June 30, 2015, respectively.
Convertible
debt consists of the following:
|
|
March 31, 2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
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.
|
|
$
|
6,868,785
|
|
|
$
|
2,899,385
|
|
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
|
|
|
(1,003,856
|
)
|
|
|
(457,886
|
)
|
Unamortized warrants discount to notes
|
|
|
(434,633
|
)
|
|
|
–
|
|
Unamortized debt discount
|
|
|
(48,391
|
)
|
|
|
(78,556
|
)
|
|
|
|
6,131,905
|
|
|
|
3,112,943
|
|
Less current portion
|
|
|
(666,885
|
)
|
|
|
(999,385
|
)
|
Convertible debt, net of current portion and debt discount
|
|
$
|
5,465,020
|
|
|
$
|
2,113,558
|
|
During
the nine months ended March 31, 2016, the Company issued $4,106,900 in 12% Series A Senior Secured Convertible Promissory Notes,
convertible into shares of the Company’s Common Stock at a conversion price of $0.10 per share. Each sub
s
criber will
receive, for every $1,000 in Promissory Notes purchase, Series A Warrants to purchase 2,000 shares of the Company’s Common
Stock at an exercise price of $0.15 per share. The Promissory Notes shall be secured by all current and future assets of the Company
on a pro-rata basis. The Company received net proceeds of $3,600,660, balance $414,690 was shown as deferred financing cost and
$91,550 was adjusted against the old accounts payable. In relation to the above note, the Company incurred $104,400 as additional
deferred financing cost. During the period ended March 31, 2016, the Company issued warrants to placement agents at exercise price
of $0.15 per share which was valued at $344,447 and recorded as deferred financing cost.
For the three and nine months ended March
31, 2016, the Company charged $175,332 and $325,567, respectively as amortization of deferred financing cost.
On
or after six months from the original issue date, the Subscriber will have the right, at the Subscriber's option, to convert all
or any portion of the principal and any accrued but unpaid interest into shares of the Company’s Common Stock at a Conversion
Price of $0.10. The Conversion Price may be adjusted for any merger, stock split or dividend. Interest shall be payable at the
rate of 12% per annum and shall be due and payable quarterly, in arrears, with the initial interest payment due September 30,
2015 (from the date of issuance), and continuing thereafter on each successive December 31, March 31, June 30 and September 30
and of each year. Standard events of default such as failure to pay interest or principal on the Notes, failure to convert the
Notes, and certain events related to insolvency. The Exercise Price of each Warrant is $0.15 per share. Each Warrant expires five
years after issuance. The Exercise Price may be adjusted for any merger, stock split or dividend.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
NOTE
8
|
|
CONVERTIBLE
DEBT
(Continued)
|
The Company allocated the proceeds from the
sale of the above promissory notes and related warrants based on the relative fair values at the time of issuance with the proceeds
allocated to the warrants accounted for as additional paid-in-capital. The detachable Warrants were valued at $567,761 using Black-Scholes
model, as the fair value of convertible promissory notes on commitment date was $567,761. The effective conversion price is calculated,
which is higher than the stock price on issuance dates, and therefore, the Company determined that the instrument’s effective
conversion price was out-the-money at the instrument’s commitment date (a “beneficial conversion feature”). The
intrinsic value of the conversion option (beneficial conversion feature) is $-0-, and the Company recorded $-0- beneficial conversion
feature to additional paid in capital.
For the three and nine months ended March 31,
2016, $69,702 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, 2016 and 2015, $9,982 and $4,603 and $68,658 and $14,013
was amortized of debt discount and shown as interest expenses, respectively.
Accrued and unpaid interest for convertible
notes payable at March 31, 2016 and June 30, 2015 was $2,551,162 and $2,216,784, respectively.
For the three and nine months ended March 31, 2016 and 2015, $128,203 and $110,341, and $383,989 and $237,061
was charged as interest on debt and shown as interest expenses, respectively.
Derivative
Liability
On
August 3, 2015, 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 $97,000. 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 70% of the VWAP
for the prior 30 days, not lower than $0.07. The Note accrues interest at a rate of 8% per annum and matures on August 3, 2018.
The note was sold to an investor on August 5, 2015.
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 $102,296 was allocated as a debt discount $27,714 was determined using intrinsic
value with the remainder $74,582 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
|
|
145%,
|
|
(3) risk-free interest rate of
|
|
0.99%,
|
|
(4) expected life of
|
|
3 years, and
|
|
(5) fair value of the Company’s common stock of
|
|
$0.09 per share.
|
|
On
August 5, 2015, 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 $97,000. 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 90% of the current
fair market price, not lower than $0.05. The Note accrues interest at a rate of 8% per annum and matures on August 5, 2017. The
note was fully converted August 5, 2015.
Due
to the variable conversion price associated with this convertible promissory notes, 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.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
NOTE
8
|
|
CONVERTIBLE
DEBT
(Continued)
|
The
initial fair value of the embedded debt derivative of $80,405 was allocated as a debt discount $10,778 was determined using intrinsic
value with the remainder $69,627 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
|
|
156%,
|
|
(3) risk-free interest rate of
|
|
0.73%,
|
|
(4) expected life of
|
|
2 years, and
|
|
(5) fair value of the Company’s common stock of
|
|
$0.06 per share.
|
|
During
the three and nine months ended March 31, 2016 and 2015, the Company recorded the loss (gain) in fair value of derivative$-0-
and ($50,445) and $-0- and ($73,282), respectively.
For
the three and nine months ended March 31, 2016, $-0- and $38,492, were 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, 2015
|
|
$
|
–
|
|
Derivative liability – insufficient shares
|
|
|
85,960
|
|
Derivative liability – reclass into additional paid in capital due to sufficient shares
|
|
|
(85,960
|
)
|
Initial measurement at issuance date of the notes
|
|
|
182,701
|
|
Derivative liability reclass into additional paid in capital upon notes conversion
|
|
|
(182,701
|
)
|
Balance March 31, 2016
|
|
$
|
–
|
|
NOTE 9
|
|
Derivative
financial instruments
|
The
following table presents the components of the Company’s derivative financial instruments associated with convertible promissory
notes (Notes 8) and warrants (Note 12), which have no observable market data and are derived using the Black-Scholes option pricing
model measured at fair value on a recurring basis, using Level 1 and 3 inputs to the fair value hierarchy, at March 31, 2016:
|
|
2016
|
|
|
2015
|
|
Embedded conversion features
|
|
$
|
–
|
|
|
$
|
–
|
|
Warrants
|
|
|
–
|
|
|
|
–
|
|
Insufficient shares
|
|
|
–
|
|
|
|
–
|
|
Derivative financial instruments
|
|
$
|
–
|
|
|
$
|
–
|
|
These derivative financial instruments arise as a result of applying
ASC 815 Derivative and Hedging
(“ASC 815”),
which requires the Company to make a determination whether an equity-linked financial instrument, or embedded feature, is indexed
to the entity’s own stock. This guidance applies to any freestanding financial instrument or embedded features that have
the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s
own stock.
During
the nine months ended March 31, 2016, the Company issued notes with embedded conversion features and warrants to purchase common
stock and the Company did not, at the date of issuance of these instruments, have a sufficient number of authorized and available
shares of common stock to settle the outstanding contracts which triggered the requirement to account for these instruments as
derivative financial instruments until such time as the Company has sufficient authorized shares.
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.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
At
March 31, 2016, $108,000 of debt was outstanding with interest rates of 8% to 15%.
Accrued
and unpaid interest for these notes payable at March 31, 2016 and June 30, 2015 was $44,460 and $39,349, respectively.
For
the three and nine months ended March 31, 2016 and 2015, $1,694 and $1,450, and $6,805 and $5,864 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 $55,368 and $55,368, and $18,456
and $18,456 for the three and nine months ended March 31, 2016 and 2015, respectively.
The
Company is delinquent in remitting its payroll taxes to the applicable governmental authorities. Total due, including estimated
penalties and interest is $626,292 and $655,446 at March 31, 2016 and June 30, 2015, 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 March 31, 2016.
Preferred shares issued and outstanding at March 31, 2016 and June 30, 2015 were 1,000 shares and 0 shares respectively.
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.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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.
As
of March 31, 2016 and June 30, 2015, there were 81,267,444 and 75,483,456 shares of common stock issued and outstanding, respectively.
During the nine months ended March 31,
2016, the Company issued 1,723,333 shares of common stock in exchange for consulting services valued at $228,333.
During the nine months ended March 31,
2016 the Company issued 2,661,195 shares of its common stock in payment of $149,500 debt and accrued interest.
During the nine months ended March 31, 2016 the Company issued 1,399,460 shares of its common stock per the
exercise of cashless warrants.
Warrants
Warrant
activity during the nine months ended March 31, 2016, is as follows:
|
|
Warrants
|
|
|
Weighted- Average Exercise Price
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding and exercisable at June 30, 2015
|
|
|
8,751,189
|
|
|
$
|
0.14
|
|
|
$
|
406,131
|
|
Granted
|
|
|
13,932,650
|
|
|
|
0.12
|
|
|
|
–
|
|
Exercised
|
|
|
(2,258,616
|
)
|
|
|
.01
|
|
|
|
–
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2016
|
|
|
20,425,223
|
|
|
$
|
0.14
|
|
|
$
|
2,859,531
|
|
During the nine months ended March 31, 2016,
the Company issued warrants to purchase 8,213,800 shares of common stock in connection with convertible notes. These
warrants have an exercise price of $0.15 per share and expire within five years from the date of issue and the same was accounted
as warrant discount and valued $567,761 as of March 31, 2016 (see Note 8).
During
the nine months ended March 31, 2016, the Company issued warrants to purchase 5,421,900 shares of common stock for professional
fees related to the issuances of convertible notes. These warrants have an exercise price of $0.07 to $0.10 per share and expire
within three years from the date of issue and the same was accounted as deferred financing cost and valued $344,447 as of March
31, 2016 (see Note 8).
During
the nine months ended March 31, 2016, the Company issued warrants to purchase 296,950 shares of common stock for non-cash interest
fees. These warrants have an exercise price of $0.06 and expire within five years from the date of issue and the same was accounted
for as interest expense and valued at $19,183 as of March 31, 2016.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
NOTE
12
|
|
EQUITY
(Continued)
|
During
the nine months ended March 31, 2016, the Company issued 1,399,460 shares of common stock in order to fulfill the cashless exercise
of 2,258,616 warrants. Due the nature of the exercise, the Company did not receive any funds.
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
|
|
0.82% to 1.1%;
|
|
(2) dividend yield of
|
|
0%;
|
|
(3) volatility factor of
|
|
138%-148%;
|
|
(4) an expected life of the conversion feature of
|
|
3 to 5 years, and
|
|
(5) estimated fair value of the company’s common stock of
|
|
$0.07 to $0.10 per share.
|
|
Stock
Option Plan
There
were no new options granted or exercised during the nine months ended March 31, 2016 and 2015. There are no stock options outstanding
as of March 31, 2016 and June 30, 2015.
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 nine months ended March 31, 2016 and 2015 total revenue includes $5,321,145 and $239,898, respectively, revenue from a related
party.
Also,
total accounts receivables as of March 31, 2016 of $441,641 includes $441,641 receivables from a related party. Further, total
unearned revenue as of March 31, 2016 of $2,182,181 includes $1,037,882 advance for sales order received from a related party.
PROVISION
HOLDING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2016
UNAUDITED
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
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LEGAL
PROCEEDINGS
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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
nine months ended March 31, 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
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SUBSEQUENT
EVENTS
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During April 2016, the Company issued
200,000 shares of common stock in payment of services received in connection to a consulting agreement.
During April 2016, the Company issued
30,000 shares of common stock in payment of services received in connection to a consulting agreement.
During April 2016, the Company issued
625,000 shares of common stock to an investor as the result of the exercise of a warrant agreement at $0.04 per share.
During April 2016, the Company issued
4,300,000 shares of common stock to an investor as the result of a debt conversion of the Company’s 12% Senior Secured Convertible
Promissory Notes at a conversion price of $0.10 per share.
On May 6, 2016, the Company exchanged
a debenture with an unpaid principal amount of $195,000 and unpaid interest of $94,839 for $7,821 in cash, a 12% Senior Secured
Convertible Promissory Note for $282,018 convertible into the Company’s common stock at $0.10 per share and a warrant to
purchase 564,036 shares of the Company’s common stock at $0.15 per share which expires on May 6, 2021.