UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended: June 30, 2017

 

PROVISION HOLDING, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   333-127347   90-0457009
(State or Other Jurisdiction
of Incorporation)
  (Commission File Number)   (I.R.S. Employer
Identification Number)

 

9253 Eton Avenue, Chatsworth, California 91311

(Address of Principal Executive Office) (Zip Code)

 

(818) 775-1624

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes  ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ☐ Yes  ☒ No

 

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

 

Indicate by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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

 

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

 

Large accelerated filer ☐  Accelerated filer ☐ 
Non-accelerated filer

Smaller reporting company

Emerging growth company

☒ 

 

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

 

As of December 31, 2016, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $11,169,597 based on a closing price of $0.12 per share of common stock as quoted on the OTC Markets on such date.

 

On October 13, 2017, we had 137,218,206 shares of common stock, par value $0.001 per share (the “Common Stock”) issued and outstanding.

 

 

 

 

 

 

Table of Contents

 

    Page
PART I
     
Item 1. Business. 3
     
Item 1A. Risk Factors. 6
     
Item 1B. Unresolved Staff Comments. 6
     
Item 2. Properties. 6
     
Item 3. Legal Proceedings. 7
     
Item 4. Mine Safety Disclosures. 7
     
PART II
     
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 8
     
Item 6. Selected Financial Data. 9
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 9
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 17
     
Item 8. Financial Statements and Supplementary Data. 17
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 17
     
Item 9A. Controls and Procedures. 17
     
Item 9B. Other Information. 18
     
PART III
     
Item 10. Directors, Executive Officers, and Corporate Governance. 19
     
Item 11. Executive Compensation. 22
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 23
     
Item 13. Certain Relationships and Related Transactions, and Director Independence. 23
     
Item 14. Principal Accountant Fees and Services. 23
     
PART IV
     
Item 15. Exhibits, Financial Statement Schedules. 24

 

i

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Provision Holding, Inc. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings “Description of Business”. We undertake no obligation to revise or update publicly any forward-looking statements unless required by law.

 

ii

 

 

PART I

 

Business History and Overview

 

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

 

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

 

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

 

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

 

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

 

Products and Services

 

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

 

1

 

 

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

 

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

 

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

 

Business Development

 

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

 

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

 

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

 

2

 

 

Rite Aid Pharmacies

 

We plan to build, own, and operate networks of 3D Savings Center kiosks. In April 2013, we had an agreement with Rite Aid Pharmacies (“Rite Aid”) to install 3D Savings Centers kiosks in all participating Rite Aid stores throughout the United States. We successfully completed the pilot test phase with nine stores in Los Angeles, and have completed the manufacturing of, and received payment for, the first 200 3D Savings Center kiosks in March 2015. The Company began shipping the first 200 kiosks to be installed in stores at the end of March 2015, with installation and deployment continuing through October 2015. We commenced operations in these stores in June 2015 and started producing limited advertising revenue during the same fiscal quarter. With the successful incorporation of Rite Aid’s wellness and loyalty program, now known as “Plenti” onto the 3D Savings Center kiosks in New York and Los Angeles and we have installed approximately 700 kiosks in Rite Aid’s top 10 demographic markets. The Company plans to earn advertising revenue from advertisements in Rite Aid.

 

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 in the fiscal year ending in June 30, 2015. The Company generated revenues and gross profit from the sale of machines to ProDava 3D during the fiscal year ended June 30, 2017.

 
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 year ended June 30, 2017 total revenue includes $1,263,008 revenue from a related party. Also, total unearned revenue as of June 30, 2017 includes $1,256,607 advance payments for sales orders received from a related party.

 

Lifestyle Ventures LLC

 

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

 

Coinstar LLC

 

On June 15, 2017, the Company entered into a five-year Strategic Alliance Agreement with Coinstar, LLC (“Coinstar”). Coinstar owns and operates approximately 17,000 self-service coin counting kiosks at retailer store locations in the United States. The Company and Coinstar will work jointly to develop and integrate the Company’s free standing patented 3D holographic display systems, known as HoloVision™ (the “Systems”) into Coinstar’s kiosks, and will be installed and promoted at retailer store locations, the specifics of which will be mutually agreed to and summarized in a separate agreement (each a “Statement of Work”). The Systems will have a proprietary coupon/loyalty card software application and provide advertising and promotions through Coinstar kiosks. For all retailer store locations in which Coinstar kiosks are installed, Coinstar has been granted an exclusive first right of refusal to include such locations.

 

3

 

 

The Company shall pay to Coinstar, and Coinstar shall pay to participating retailers a specified percentage of monthly Net Advertising Revenues, per kiosk (the “Promotion Retailer Commission”) included in a Statement of Work, which shall be determined by mutual agreement of Coinstar and Provision. “Net Advertising Revenues” is defined as gross advertising revenues from Systems less any operational expenses incurred in connection with such Systems (for example: cost of paper, service, network connectivity, network administration). The Company shall evenly divide the remaining monthly Net Advertising Revenues after deducting the Promotion Retailer Commission).

 

Under the agreement, Provision and Coinstar will integrate Provision’s patented 3D “Holovision” display systems into Coinstar kiosks nationwide. The Provision 3D holographic display will “bolt-on” to the top of the existing Coinstar kiosk as a “topper”. Our couponing and loyalty card system software will be integrated into the Coinstar touch-screen interface. The firms will evenly divide the monthly net advertising revenues, after deducting promotional retailer commissions. Provision believes that the monthly advertising revenue potential in this channel should exceed that of a retail pharmacy chain.

 

The Provision “topper” has been designed by an award winning industrial designer, and we plan to assemble the prototype beginning in August, 2017. The software teams have begun the required integration work, and we anticipate a working prototype in October, 2017. We have targeted up to 300 locations for rollout by December 31, 2017, with broader deployment scheduled for the 2018 calendar year.

 

Other Business Arrangements

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

 

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

 

Competition

 
Currently, Provision’s competition is that no other 3D companies, which may exist in the marketplace, but traditional advertising media like television, radio, newspapers and magazines. We also compete with companies that operate outdoor and Digital Out-Of-Home (DOOH) advertising media networks that can be seen at malls, gas stations, and retailers containing traditional 2D (two dimensional) TV screens or flat screens. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, billboard and public transport advertising companies.

 

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

 

Employees

 

As of June 30, 2017, we have eight employees. None of our employees is represented by a labor union. We have not experienced any work stoppages and we consider relations with our employees to be good. The company also uses independent contractors to support administration, marketing, sales and field support activities.

 

Research and Development

 

Research and Development Activities

 

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

 

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

 

4

 

 

For the years ended June 30, 2017 and 2016, the Company incurred $300,905 and $311,798, respectively for research and development expense which are included in the consolidated statements of operations. Our research and development expense is primarily related to employees and contractors that provide specialized services.

 

Intellectual Property

 

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

 

The following table summarizes the status of ProVision patents and trademarks, as of the date hereof, in each instance, ProVision owns all right, title and interest, and no licenses, security interests, or other encumbrances have been granted on such patents and trademarks.

 

Patent/Registration #   Date   Status   Type   Note
US 7,568,803 B2   4-Aug-09   Issued   Utility   Aerial Display System with Low Cost Plastic Spherical Mirror
US D527,729 S   5-Sep-06   Issued   Design   Housing for an Interactive Aerial Display System
US D505,948 S   7-Jun-05   Issued   Design   Housing for an Interactive Aerial Display System
US D526,647 S   15-Aug-06   Issued   Design   Housing for an Interactive Aerial Display System
US D506,756 S   28-Jun-05   Issued   Design   Housing for a Wall-Mounted Aerial Display System
US D506,464 S   21-Jun-05   Issued   Design   Housing for a Hooded Interactive Aerial Display System
US 7,614,749 B2   10-Nov-09   Issued   Utility   Aerial-Image Display Systems with a Plastic Mirror
US 6,733,293 B2   11-May-04   Issued   Utility   Personal Simulator
US 6,808,268 B2   26-Oct-04   Issued   Utility   Projection System for Aerial Display of Three-Dimensional Video Images
US 8,279,268 B2   2-Oct-12   Issued   Utility   Projection System with Wall Structures for Aerial Display of Three-Dimensional Video Images
US 7,517,090 B2   14-Apr-09   Issued   Utility   Real Image Projection Device Having Plastic Curved Mirror for Improving Image and Correcting Aberrations
US 7,881,822 B2   1-Feb-11   Issued   Utility   System and Method for Dispensing Consumer Products
12/259,013   Oct-07   In Process   Utility   HLXX
PCT/US07/76554   Aug-07   In Process   Utility   Plastic Mirror Methods
PCT/US07/76574   Aug-07   In Process   Utility   Aerial Display System w/Plastic Optic
PCT/US07/76572   Aug-07   In Process   Utility   Apparatus with Aerial w/Plastic Optic
PCT/US07/76568   Aug-07   In Process   Utility   Apparatus for Image w/Plastic Optic
PCT/US07/76566   Aug-07   In Process   Utility   Aerial Image Display w/Plastic Optic
PCT/US07/76361   Aug-07   In Process   Utility   Projection System w/Plastic Optic
11/843,109   Aug-07   In Process   Utility   Plastic Mirror Methods
11/843,144   Aug-07   In Process   Utility   Aerial Display System w/Plastic Optic
11/843,139   Aug-07   In Process   Utility   Apparatus with Aerial. w/Plastic Optic
11/843,134   Aug-07   In Process   Utility   Apparatus for Image w/Plastic Optic
11/843,125   Aug-07   In Process   Utility   Aerial Image Display w/Plastic Optic
11/843,115   Aug-07   In Process   Utility   Projection System w/Plastic Optic
60/839,740   Aug-06   In Process   Utility   Low Cost Plastic Optic
12/287,226   May-04   In Process   Utility   Aerial Display System
11/059,575   Feb-04   In Process   Utility   Coupon/Product Dispensing Kiosk
PCT/US03/25506   Aug-03   In Process   Utility   Projection system for aerial display
78/917,286   Jun-06   Issued   Trademark   Holocasting
3,118,432   Apr-05   Issued   Trademark   Promotions You Experience
2,706,431   April-03   Issued   Trademark   PITI
2,699,733   Mar-03   Issued   Trademark   PEI
2,699,732   Mar-03   Issued   Trademark   Holosoft
76/342,406   Jan-00   Allowed   Trademark   Holovision: Common Law

 

5

 

 

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

 

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

 

We rely on a combination of patent, patent pending, copyright, trademark and trade secret laws, proprietary rights agreements and non-disclosure agreements to protect our intellectual properties. We cannot give any assurance that these measures will prove to be effective in protecting our intellectual properties. We also cannot give any assurance that our existing patents will not be invalidated, that any patents that we currently or prospectively apply for will be granted, or that any of these patents will ultimately provide significant commercial benefits. Further, competing companies may circumvent any patents that we may hold by developing products which closely emulate but do not infringe our patents. While we intend to seek patent protection for our products in selected foreign countries, those patents may not receive the same degree of protection as they would in the United States. We can give no assurance that we will be able to successfully defend our patents and proprietary rights in any action we may file for patent infringement. Similarly, we cannot give any assurance that we will not be required to defend against litigation involving the patents or proprietary rights of others, or that we will be able to obtain licenses for these rights.  Legal and accounting costs relating to prosecuting or defending patent infringement litigation may be substantial.

 

We also rely on proprietary designs, technologies, processes and know-how not eligible for patent protection.  We cannot give any assurance that our competitors will not independently develop the same or superior designs, technologies, processes and know-how.

 

While we have and will continue to enter into proprietary rights agreements with our employees and third parties giving us proprietary rights to certain technology developed by those employees or parties while engaged by us, we can give no assurance that courts of competent jurisdiction will enforce those agreements.

 

Item 1A. RISK FACTORS

 

Not required for smaller reporting companies.

 

Item 1B. Unresolved Staff Comments.

 

Not Applicable.

 

Item 2. Properties.

 

Our principal executive offices are located at 9253 Eton Avenue, Chatsworth, California 91311. The offices consist of approximately 7,500 square feet. Rent expense was $98,158 and $69,313 for the years ended June 30, 2017 and 2016, respectively. On March 2, 2016, the Company entered into an Amendment to Lease in order to extend the current lease through March 31, 2019. The lease calls for monthly rent of $6,988 per month for the period of April 1, 2017 through March 31, 2018. The monthly rent increases 4% for each of the year.

 

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Item 3. Legal Proceedings.

 

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

 

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

 

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

 

On June 19, 2017, the Company received a letter from an attorney for Kiosk Information Systems (“KIS”) demanding payment of $1,272,360 for the balance due on kiosks held by KIS including $231,182 in interest. We are negotiating with KIS. No suit has been filed and the Company has accrued the full amount of the demand from KIS.

 

On September 5, 2017 the Company received a letter from an attorney representing Rite Aid Hdqtrs. Corp’s (“Rite Aid”), pursuant to which Rite Aid indicated its desire to terminate the Point of Sales Advertising Agreement (“Agreement”) with the Company. The Company is disputing Rite Aid’s ability to terminate the Agreement. Thereafter, on October 16, 2017, the Company initiated an arbitration before JAMS.

 

Item 4. Mining. Receivable

 

Not Applicable.

 

7

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our common stock, from September 30, 2016, is quoted on the OTCQB market maintained by the OTC Market Group Inc. under the symbol “PVHO”.

 

The following table sets forth the high and low bid and offer prices, as reported by OTCQB for the quarters in fiscal years ended June 30, 2017 and 2016:

 

   High   Low 
Fiscal year ended June 30, 2017          
Quarter Ended June 30, 2017  $0.082   $0.054 
Quarter Ended March 31, 2017   0.120    0.061 
Quarter Ended December 31, 2016   0.215    0.080 
Quarter Ended September 30, 2016   0.249    0.233 
           
Fiscal year ended June 30, 2016          
Quarter Ended June 30, 2016   0.510    0.161 
Quarter Ended March 31, 2016   0.288    0.055 
Quarter Ended December 31, 2015   0.099    0.061 
Quarter Ended September 30, 2015   0.330    0.170 

 

On October 13, 2017, the closing bid quote for the Common Shares was $0.05 per share, and there were approximately 600 holders of record of Common Shares. TranShare Corporation, 15500 Roosevelt Blvd., Suite 301, Clearwater, FL 33556, is the transfer agent for the Company’s common shares. 

 

Penny Stock

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our Common Stock. Therefore, stockholders may have difficulty selling our securities.

 

Dividends

 

We have never declared or paid any cash dividends on our capital stock.  The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our Board of Directors may consider appropriate.  We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.

 

8

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company does not have any equity compensation plans or any individual compensation arrangements with respect to its Common Stock or Preferred Stock. The issuance of any of our common or preferred stock is within the discretion of our Board of Directors, which has the power to issue any or all of our authorized but unissued shares without stockholder approval.

 

Recent Sales of Unregistered Securities

 

Neither the Registrant nor any person acting on its behalf offered or sold the securities of the Company by means of any form of general solicitation or general advertising. No services were performed by any purchaser as consideration for the shares issued.

 

Issuer Purchases of Equity Securities

 

None.

 

Item 6. Selected Financial Data.

 

Not applicable.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis provides information which management believes is relevant for an assessment and understanding of the results of operations and financial condition.  Expectations of future financial condition and results of operations are based upon current business plans and may change.  The discussion should be read in conjunction with the audited consolidated financial statements and notes thereto.

 

Results of Operations

 

YEAR ENDED JUNE 30, 2017 COMPARED TO YEAR ENDED JUNE 30, 2016

  

   2017   2016 
REVENUES        
Advertising revenues  $332,017   $- 
Hardware revenues   110,720    57,710 
Hardware revenues – related party   1,196,552    4,313,046 
Service related revenues – related party   -    506,695 
Software revenues – related party   66,456    136,705 
TOTAL REVENUES   1,705,745    5,014,156 
COST OF REVENUES   

1,922,611

    4,488,001 
GROSS PROFIT (LOSS)   (216,866)   526,155 
EXPENSES          
General and administrative   3,162,229    2,153,432 
Research and development   300,905    311,798 
TOTAL EXPENSES   3,463,134    2,465,230 
LOSS FROM OPERATIONS   (3,680,000)   (1,939,075)
OTHER INCOME (EXPENSE)          
Derivative liability expense – insufficient shares   -    (85,960)
Change in fair value of derivative   63,372    18,868 
Gain on forgiveness of debt   -    597,312 
Loss on settlement of debt   (48,000)   - 
Loss on extinguishment of debt   -    (2,865,234)
Amortization of debt and warrant discount and financing costs   (2,468,355)   (913,544)
Other income (expense)   -    2,053 
Interest expense   (1,192,145)   (1,017,236)
TOTAL OTHER INCOME (EXPENSE)   (3,645,128)   (4,263,741)
NET LOSS  $(7,325,128)  $(6,202,816)

  

REVENUES

 

The Company recognizes revenues from hardware sales, advertising and from licensing, distribution and marketing agreements. Revenues for the years ended June 30, 2017 were $1,705,745, a decrease from $5,014,156 generated in the year ended June 30, 2016. The decrease in revenues was primarily a result in the decrease of revenues from related party sales. The related party revenue is for sales to ProDava 3D, LLC to purchase Provision’s 3D Savings Center kiosks for placement into retail stores. During the year ended June 30, 2017 the Company had two customers which accounted for more than 10% of the Company’s revenues (74% and 19%, respectively). During the year ended June 30, 2016 the Company had one customer which accounted for more than 10% of the Company’s revenues (98%). 

 

9

 

 

COST OF REVENUES

 

Cost of revenues for the year ended June 30, 2017 was $1,922,611 from $4,488,001 incurred in the year ended June 30, 2016. Cost of revenues for the year ended June 30, 2017 was a result of the uncollectability of expenses paid on behalf of ProDava.

 

OPERATING EXPENSES

 

The Company incurred $3,463,134 in operating expenses for the year ended June 30, 2017, an increase from $2,465,230 incurred during the year ended June 30, 2017 primarily as a result of a $1,008,797 increase in general and administrative expenses and decrease in research and development expenses by $10,893. General and administrative expenses for the year ended June 30, 2017 increased primarily as a result of accounting and legal costs due to the Company completing several overdue SEC filings and additional travel expenses related to the supervision of the installations of kiosks during the year.

 

OTHER EXPENSES

 

The Company had various miscellaneous income and expenses. The largest gain was a gain of $597,312 during the year ended June 30, 2016 on extinguishment of debt of a previously recorded contingency loss after it filed a lawsuit and was awarded a default judgement in its favor from a dispute that started in 2004 with Betacorp Management, Inc.

 

During the year ended June 30, 2016 the Company recorded a charge of $85,960 for the derivative liability resulting from the Company having insufficient shares for issued and outstanding common stock equivalents. The Company authorized additional shares during the year ending June 30, 2016.

 

The Company recognized a gain of $63,372 and $18,868 during the years ended June 30, 2017 and 2016, respectively, from the change in fair value of derivative as a result of fluctuating market prices of the Company’s common stock.

 

The Company recorded a $48,000 loss due to the settlement of a debt during the year ended June 30, 2017.

 

During the year ended June 30, 2016, the Company recorded expense in the amount of $2,865,234 related to the loss on extinguishment of certain debts.

 

The Company recorded amortization of debt and warrant discounts and financing costs in the amounts of $2,468,355 and $913,544 during the years ended June 30, 2017 and 2016, respectively.

 

The Company recorded interest expense of $1,192,145, primarily related to convertible notes in the amount of $960,963 as well as interest charged by a vendor for the storage of kiosks in the amount of $231,182, during the year ended June 30, 2017. This is a decrease of $56,273 compared to the interest expense of $1,017,236 recorded during the year ended June 30, 2016.

 

NET LOSS:

 

The Company had a net loss of $7,325,128 for the year ended June 30, 2017 compared to net loss of $6,202,816 for the year ended June 30, 2016. The higher net loss for the year ended June 30, 2017 was primarily a result of the gain on forgiveness of debt partially offset by the uncollectability of $320,073 of expenses paid on behalf of ProDava, higher interest expense and increased operating expenses.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The consolidated financial statements in this Form 10-K 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 June 30, 2017 of $42,083,390. The Company has negative working capital of $13,165,075 as of June 30, 2017. The largest balances in current liabilities are for current portion of convertible debt, net ($7,216,032) accrued interest ($2,557,435) and unearned revenue ($2,057,607). The Company is in the process of negotiating with noteholders to convert accrued interest into long-term notes to reduce current liabilities and plans to ship goods to reduce the unearned revenue.

 

The 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.

 

10

 

 

To raise cash on March 31, 2017, the Company accepted and entered into Subscription Agreements (the “Subscription Agreements”) for 13,333,339 shares of Company’s common stock with 15 accredited investors (the “Investors”) for an aggregate purchase price of $800,000 at a price of $0.06 per share. Each Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.09 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Warrants are valued at $154,933. Net cash received after fees of $20,000, the warrant valuation of $154,933 and a subscription receivable of $50,000 was $575,067. Additionally, on June 19, 2017, the Company accepted and entered into a Subscription Agreement (the “Subscription Agreement”) for 4,166,666 shares of Company’s common stock with an accredited investor (the “Investor”) for an aggregate purchase price of $250,000 at a price of $0.06 per share. The Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.12 per share and are exercisable for three-years from the date of issuance of the Warrant. The Warrants are valued at $ 37,250. Net cash received was $250,000.

 

The Company does have $310,749 in cash as of June 30, 2017 as a result of an issuance of convertible debt. The Company has sufficient cash to operate for the next 12 months. Failure to raise additional capital or improve its performance in the next 12 months, however, may cause the Company to curtail its business activities and expansion plans within the next twelve months.

 

During the year ended June 30, 2017, the Company used $3,497,999 of cash for operating activities compared to a use of $2,461,374 in the year ended June 30, 2016. The increase in cash used for operating activities was due a higher net loss and the use of cash to lower accounts payable and accrued liabilities and the effect of higher accounts receivable due to higher sales. Cash from financing activities was $1,633,205 in the year ended June 30, 2017 compared to cash from financing activities of $4,553,549 in the year ended June 30, 2016. The increase in cash provided by financing activities was primarily due to proceeds from the issuance of convertible notes. During the year ended June 30, 2016, the company used $45,600 in investing activities for the purchase of $27,500 fixed assets and $18,100 of intangible assets.

 

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

 

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

 

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

 

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

 

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

 

On June 19, 2017, the Company received a letter from an attorney for Kiosk Information Systems (“KIS”) demanding payment of $1,272,360 for the balance due on kiosks held by KIS including $231,182 in interest. We are negotiating with KIS. No suit has been filed and the Company has accrued the full amount of the demand from KIS. 

 

On September 5, 2017 the Company received a letter from an attorney representing Rite Aid Hdqtrs. Corp’s (“Rite Aid”), pursuant to which Rite Aid indicated its desire to terminate the Point of Sales Advertising Agreement (“Agreement”) with the Company. The Company is disputing Rite Aid’s ability to terminate the Agreement. Thereafter, on October 16, 2017, the Company initiated an arbitration before JAMS.

 

11

 

 

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

 

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

 

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

 

On April 19, 2017, the Company issued a $60,000 convertible debenture. The note bears interest at 12%, is due on April 19, 2019 and, is convertible into shares of the Company’s common stock at $0.06 per share. On June 23, 2017, the holder converted the principal of $60,000 and accrued interest of $1,282 into 1,021,367 shares of the Company’ common stock.

 

On June 19, 2017, the Company accepted and entered into a Subscription Agreement (the “Subscription Agreement”) for 4,166,666 shares of Company’s common stock with an accredited investor (the “Investor”) for an aggregate purchase price of $250,000 at a price of $0.06 per share. The Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.12 per share and are exercisable for three-years from the date of issuance of the Warrant. The Warrants are valued at $37,250. Net cash received was $250,000.

 

During the year ended June 30, 2017, the Company entered into eleven promissory notes with investors pursuant to which the Company issued eleven promissory notes in the principal amount of $221,500. The notes accrue interest at a rate of 5% per annum and mature in 120 days. As additional consideration, the Company issued the investors 2,925,000 shares of common stock. The value of the stock consideration was limited to the value of the individual promissory notes, for a total of $173,000. The stock consideration was recorded as a discount against the notes. For the years ended June 30, 2017 and 2016, $98,179 and $-0-, respectively, was expensed in the statement of operations as amortization of debt discount related to the notes and show as interest expenses. The unamortized debt discount was $74,821 and $-0- at June 30, 2017 and 2016, respectively.

 

CRITICAL ESTIMATES AND JUDGMENTS

 

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

 

12

 

 

CRITICAL ACCOUNTING POLICIES

 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include:

 

Useful Life of Depreciable AssetsThe Company is required to exercise judgment in determining the estimated useful life of depreciable assets. The useful life is determined based on management’s judgement. The useful lives are reviewed on a regular basis to determine that the useful life is consistent with current economic events and historical events.

 

Share-based Payments and Warrants – The Company is required to exercise judgment in calculating the fair value of share based payments and warrants. The fair value calculation includes several inputs that are subject to management’s judgement. Management reviews these inputs on a regular basis to determine that the values used in the calculation are consistent with current economic events and historical events.

 

Conversion Feature and Warrant Derivative Liability – The Company is required to exercise judgment in calculating the fair value of the conversion feature and warrant derivative liability. The fair value calculation includes several inputs that are subject to management’s judgement. Management reviews these inputs on a regular basis to determine that the values used in the calculation are consistent with current economic events and historical events.

 

Contingent Liabilities - The Company is required to make judgments about contingent liabilities including the probability of pending and potential future litigation outcomes that, by their nature, are dependent on future events that are inherently uncertain. In making its determination of possible scenarios, management considers the evaluation of outside counsel knowledgeable about each matter, as well as known outcomes in case law.

 

Income Taxes - Significant judgement is involved in determining the Company’s provision for income taxes, including any valuation allowance on deferred income tax assets. There are certain transactions and computations for which the ultimate tax determination is uncertain during the normal course of business. The Company recognizes liabilities for expected tax issues based upon estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recognized, such difference will impact the income tax and deferred tax positions in the year in which such determination is made.

 

Going Concern - The Company is required to exercise judgement in determining the going concern analysis. The going concern analysis is determined based on management’s future projected cash flows, management judgement, and future projected financings. Management reviews these inputs on a regular basis based on current and historic events.

 

Impairment of Long-Lived Assets - The Company is required to exercise judgement in evaluating the recoverability of the carrying value of long-lived assets, both tangible and intangible assets. The Company evaluates the current events of the Company and business and market conditions. Management reviews these events on a regular basis to determine if any events or circumstances have changed. 

 

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.

 

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.

 

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

 

13

 

 

Significant Customers. During the year ended June 30, 2017 the Company had two customers which accounted for more than 10% of the Company’s revenues (74% and 19%, respectively). During the year ended June 30, 2016 the Company had one customer which accounted for more than 10% of the Company’s revenues (98%). As of June 30, 2016, the Company had no accounts receivable balance. As of June 30, 2017, the Company had no accounts receivable balance. 

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

   Carrying   Fair Value Measurements 
Using Fair Value Hierarchy
 
   Value   Level 1   Level 2   Level 3 
Derivative liability – June 30, 2017  $408,286   $-   $           -   $408,286 
Derivative liability – June 30, 2016  $188,128   $-   $-   $188,128 

 

14

 

 

Recent Accounting Pronouncements

 

Revenue from Contracts with Customers

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.

 

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), deferring the effective date of this standard. As a result, the ASU and related amendments will be effective for the Company for its fiscal year beginning July 1, 2018, including interim periods within that fiscal year. Early adoption is permitted, but not before the original effective date of the ASU, August 1, 2017.

 

Subsequently, the FASB issued ASU No. 2016-08, Principal Versus Agent Consideration (or Reporting Revenue Gross versus Net) (“ASU 2016-08”) in March 2016, ASU No. 2016-10, Identifying Performance Obligations and Licensing in April 2016, and ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients in May 2016. These amendments clarified certain aspects of Topic 606 and have the same effective date as ASU 2014-09.

 

The Company will adopt these ASUs (collectively, Topic 606) on July 1, 2018. Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented (the “Full Retrospective Method”), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the “Modified Retrospective Method”). The Company currently intends to apply the Modified Retrospective Method.

 

The Company is still evaluating the potential impact of Topic 606 on its revenue recognition policy and practices and has concluded that Topic 606 will impact the pattern of its revenue recognition associated with its contracts with customers. In conjunction with its evaluation of this new standard, the Company may need to revise its contracting practices and amending existing agreements with certain customers. Since fiscal 2016, a substantial majority of new contracts feature a longer than one year initial term.

 

The Company continues to evaluate the other potential impacts that Topic 606 will have on its consolidated financial statements, internal controls, business processes, and information technology systems including, for example, how to account for commission expense and revenue models acquired from recent acquisitions.

 

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.

 

15

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting (Topic 718) (“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements. ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The new standard is effective for annual periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. The standard will be effective for the Company beginning August 1, 2018. The Company is currently evaluating the impact this update will have on its consolidated financial statements.

 

ECONOMY AND INFLATION

 

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

 

16

 

 

OFF-BALANCE SHEET AND CONTRACTUAL ARRANGEMENTS

 

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

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

 

Item 8.  Financial Statements and Supplementary Data.

 

Our consolidated financial statements and the related notes begin on Page F-1, which are included in this Annual Report on Form 10-K. 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that arc designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(c) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(t) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

1.      Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2.      Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

3.      Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

17

 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2017. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring.

 

Identified Material Weakness

 

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement or the financial statements will not be prevented or detected.

 

Management identified the following material weakness during its assessment of internal controls over financial reporting as of June 30, 2017:

 

Resources: As of June 30, 2017, we had eight full-time employees in general management and no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.

 

Written Policies & Procedures: We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.

 

Management’s Remediation Initiatives

 

As our resources allow, we will add financial personnel to our management team. We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions.

 

(b)  Changes In Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2017 that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None. 

 

18

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Our executive officers, directors and significant employees and their ages and their respective positions as of June 30, 2017 were as follows:

 

Name   Age   Position
Curt Thornton   61   Chief Executive Officer, Chairman, President, and Director(1)
Robert Ostrander   63   Vice President, Sales, Business Development, Secretary and Director
Jon Corfino   59   Director

 

(1)As of September 18, 2017, Curt Thornton is serving as the Company’s Chief Operating Officer and has stepped down as Chief Executive Officer and President. The positions will be filled by Mark Leonard.

 

Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement), at our annual meeting, to hold such office until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board.

 

Background of Executive Officers and Directors

 

Curt Thornton 

 

Curt Thornton was chief executive officer, president, chairman and a director of the Company since Mach 2008 and as of September 18, 2017, was elected as the Company’s chief operating officer. Mr. Thornton is the founder of ProVision and has been chief executive officer, president, chairman and director of ProVision since our inception in December 2000.  Mr. Thornton has over 20 years of international executive experience in operations, manufacturing, engineering and sales driven companies. He has held senior executive positions at Iwerks Entertainment Corp., Northern Telecom and Tandon Computers. Mr. Thornton earned an MBA from Pepperdine University and a Bachelor’s degree in Engineering from Western Illinois University.  Mr. Thornton’s executive experience provides value to the Board of Directors.

 

Robert Ostrander

 

Robert Ostrander has been Vice President, Sales, Business Development, secretary, and a director of the Company since March 2008. Mr. Ostrander has been President, Sales, Marketing, Business Development, secretary, and a director for ProVision since March 2001.

 

Mr. Ostrander has 20 years of sales and business development experience, both domestic and international. He has held senior positions in sales at Allied Domecq, Kraft Foods, Sara Lee and Welch Foods. He holds an MBA from Pepperdine University, and a B.S. from the State University of New York.  Mr. Ostrander’s sales experience provides value to the Board of Directors.

 

Jon Corfino

 

Jonathan Corfino has been a director of the Company since March 2008. Mr. Corfino has been a director of ProVision since 2003. Mr. Corfino is a senior executive with 20 years’ experience in the theme park, location-based and interactive entertainment industry. Mr. Corfino is the founder of Attraction Media & Entertainment, Inc. and has been its chief executive officer since 2001. Mr. Corfino was president, location-based entertainment for Stan Lee Media, Inc. from 1999 to 2000. He was senior vice president in charge of production at Iwerks Entertainment, from 1993 to 1999, where he supervised the production and/or acquisition of over 30 specialty films for Simulation, Attraction and Large Format venues. Prior to Iwerks, from 1978 to 1991, Mr. Corfino worked in the Planning and Development group at MCA/Universal as a Project Manager. He was directly involved in the creative development and construction of a variety of projects and attractions, including “The Star Trek Adventure”, “Back to the Future - The Ride”, “ET the Extraterrestrial” and studio center expansion plus special effects stages. Mr. Corfino holds a Bachelor of Arts degree from UCLA.  Mr. Corfino’s experience with media companies and ventures provides value to the Board of Directors.

 

Mark Leonard

 

Mark Leonard has been the Chief Executive Officer and President of the Company since September 18, 2017. Mr. Leonard’s experience spans nearly 25 years and encompasses a variety of industries, including computer software, retail and prepaid payment solutions. He most recently served as Executive Vice President of Business Development/ Sales and Trade Marketing at InComm, Inc., a leader in prepaid and payment solutions, where he developed and led new revenue opportunities, ran all existing retail channels, and contributed to the firm’s mergers and acquisitions activities. Previously, he spent five years at Blackhawk Networks, a publicly traded company that serves as the leader in the prepaid, gift card and payment industries, where he held the position of Group Vice President of Alliances at Blackhawk Network, overseeing both new and existing retail business across the US. Prior to Blackhawk, he served as President and Executive Vice President and of Astoria Software, a database management software company. He currently serves on the Advisory Board of KargoCard, China’s largest prepaid card company. Prior to his distinguished business career, Mark played baseball professionally for over 10 years.

 

19

 

 

Term of Office

 

Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders or until removed from office in accordance with our bylaws.

 

Our executive officers are appointed by our board of directors and hold office until removed by the board.

 

Significant Employees

 

Jeff Vrachan has been Vice President Engineering and Chief Technology Officer since our inception in December 2000. Prior to joining Provision, Mr. Vrachan served as a Project Manager, Engineering Manager and Operations Manager for high-tech companies such as Allied Signal, Mitsubishi Electronics and Southwestern Industries. Mr. Vrachan has a Bachelor’s degree in Electrical Engineering from the University of California and a second Bachelor’s degree in Business Management from the University of Phoenix.

 

Family Relationships

 

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, during the past five years, none of the following occurred with respect to a present director, person nominated to become director, executive officer, or control person: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

20

 

 

Audit Committee

 

We do not have a separately-designated standing audit committee. The entire board of directors performs the functions of an audit committee, but no written charter governs the actions of the board of directors when performing the functions of that would generally be performed by an audit committee. The board of directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the board of directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.

 

We do not have an audit committee financial expert because of the size of our company and our board of directors at this time. We believe that we do not require an audit committee financial expert at this time because we retain outside consultants who possess these attributes.

 

Nominating Committee

 

We do not have a nominating committee. The board of directors acts as the nominating committee and members of the board participate in the discussions. If the size of the board expands, the board will reconsider the need or desirability of a nominating committee.

 

Compensation Committee

 

We do not have a compensation committee. If the size of the board expands, the board will reconsider the need or desirability of a compensation committee.

 

For the fiscal year ending June 30, 2017, the board of directors:

  

1.   Reviewed and discussed the audited financial statements with management, and

 

2.   Reviewed and discussed the written disclosures and the letter from our independent auditors on the matters relating to the auditor’s independence.

 

Based upon the board of directors’ review and discussion of the matters above, the board of directors authorized inclusion of the audited financial statements for the year ended June 30, 2017 to be included in this Annual Report on Form 10-K and filed with the Securities and Exchange Commission.

 

Code of Ethics Disclosure

 

We adopted a Code of Ethics for Financial Executives, which include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics was filed as an exhibit to the Annual Report on Form 10-KSB for the fiscal year ended March 31, 2006, as filed with the SEC on July 14, 2006.

 

21

 

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following table sets forth all compensation paid in respect of the Company’s Chief Executive Officer and those individuals who received compensation in excess of $100,000 per year for the last three completed fiscal years.

 

SUMMARY COMPENSATION TABLE

 

Name & Principal Position   Fiscal Year
Ended
June 30,
  Salary
($)(1)
    Bonus
($)
    All
Other
Compensation
($)
    Total
($)
 
Curt Thornton   2017     144,000                                     144,000  
Chief Executive Officer and   2016     144,000       -       -       144,000  
Principal Financial Officer (2)   2015     144,000       -       -       144,000  
                                     
Robert Ostrander   2017     125,000                       125,000  
Vice President, Sales and   2016     125,000       -       -       125,000  
Business Development   2015     125,000       -       -       125,000  
                                     
Jeff Vrachan   2017     125,000                       125,000  
Vice President Engineering   2016     125,000       -       -       125,000  
Chief Technology Officer   2015     125,000       -       -       125,000  

 

(1)

In the fiscal years ended June 30, 2014 and June 30, 2015, none of the officers received all of their contractual salary included above. The balance due from each year was accrued as an amount payable.  Curt Thornton received $37,692 and $78,669 for the fiscal years ended June 30, 2015 and 2014. Robert Ostrander received $33,654 and $70,708 for the fiscal years ended June 30, 2015 and 2014 and 2013. Jeff Vrachan received $33,654 and $65,900 for the fiscal years ended June 30, 2015 and 2014.

   
(2) As of September 18, 2017, Curt Thornton is serving as the Company’s Chief Operating Officer and has stepped down as Chief Executive Officer and President. The positions will be filled by Mark Leonard.

 

Director Compensation

 

On August 17, 2017, the Company issued 8,899,908 stock options to employees and board members in consideration for performance goals and board remuneration. The options have an exercise price of $0.045 and a term of five years.

 

Employment Contracts, Termination of Employment and Change in Control

 

Curt Thornton, Robert Ostrander, and Jeff Vrachan have all entered into Employment Agreements, dated May 30, 2006.

 

Mark Leonard entered into an Employment Agreement providing for a salary of $144,000, the right to be reimbursed for health care and severance for termination without cause and resignation with cause, dated September 18, 2017. The Employment Agreement is incorporated in this Annual Report as Exhibit 10.13.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information, as of October 13, 2017 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

 

Name of Beneficial Owner (1)  Common Stock
Beneficially Owned
   Percentage of Common Stock (2) 
Curt Thornton   7,075,200    5.2%
Robert Ostrander   2,725,000    2.0%
Jon Corfino   325,000    0.2%
All officers and directors as a group (3 persons owning stock)   10,125,200    7.4%

 

(1) Except as otherwise indicated, the address of each beneficial owner is c/o Provision Holding, Inc. 9253 Eton Avenue, Chatsworth, California 91311.
   
(2) Applicable percentage ownership is based on 137,218,206 shares of common stock outstanding as of October 13, 2017. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of October 13, 2017 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

ProDava 3D

 

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

 

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

 

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

 

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

 

For the years ended June 30, 2017 and 2016 total revenue includes $1,263,008 and $4,956,446, respectively, revenue from a related party. Also, total unearned revenue as of June 30, 2017 of $2,057,607 includes $1,256,607 advance for sales order received from a related party.

 

Transactions with Officers and Directors

 

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

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Our consolidated financial statements for the fiscal years ended June 30, 2017 and 2016 were audited by RBSM LLP.

 

Since we do not have a formal audit committee, our board of directors serves as our audit committee. We have not adopted pre-approval policies and procedures with respect to our accountants. All of the services provided and fees charged by our independent registered accounting firms were approved by the board of directors.

 

Services rendered by RBSM LLP

 

The following is a summary of the fees for professional services rendered by RBSM LLP for the years ended June 30, 2017 and 2016. 

 

Fee Category  2017   2016 
Audit fees  $108,600   $68,250 
Audit-related fees   -    - 
Tax fees   -    - 
Other fees   -    - 
Total Fees  $108,600   $68,250 

 

Audit fees. Audit fees represent fees for professional services performed by RBSM LLP for the audit of our annual financial statements and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory and regulatory filings or engagements.

 

Audit-related fees. We did not incur any other fees for services performed by RBSM LLP, other than the services covered in “Audit Fees” for the fiscal years ended June 30, 2017 or 2016.

 

Tax Fees. We did not incur any fees for tax services performed by RBSM LLP.

 

Other fees. RBSM LLP did not receive any other fees during for the fiscal years ended June 30, 2017 or 2016.

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

Exhibit Number   Description
3.1   Certificate of Amendment to Articles of Incorporation of MailTec, Inc. (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2008)
3.1.1   Certificate of Amendment to Articles of Incorporation of Provision Holding, Inc. (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on January 6, 2016)
3.1.2   Certificate of Amendment to Articles of Incorporation of Provision Holding, Inc. (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on July 8, 2016)
3.2   Restated Bylaws of Provision Holding, Inc. (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2008)
4.1   Series A Certificate of Designation of Provision Holding, Inc. Establishing the Designations, Preferences, Limitations and Relative Rights of Its Series A Preferred Stock (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on January 6, 2016)
10.1   Agreement and Plan of Merger by and among MailTec, Inc., ProVision Merger Corp and Provision Interactive Technologies, Inc. (previously filed as an exhibit to Amendment No.1 to Form 8-K filed with the Securities and Exchange Commission on March 3, 2008)
10.2   Amended and Restated Agreement and Plan of Merger by and among MailTec, Inc., ProVision Merger Corp and Provision Interactive Technologies, Inc. (previously filed as an exhibit to Amendment No. 2 to Form 8-K filed with the Securities and Exchange Commission on March 5, 2008)
10.3  

Employment Agreement, dated June 13, 2014, by and between Provision Interactive Technologies, Inc. and Curt Thornton.*

10.4  

Employment Agreement, dated June 13, 2014, by and between Provision Interactive Technologies, Inc. and Robert Ostrander.*

10.5   Employment Agreement, dated May 30, 2006, by and between Provision Interactive Technologies, Inc. and Jeff Vrachan (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2008).
10.6   Marketing Agreement, dated February 28, 2007, by and between Intel Corporation and Provision Interactive Technologies, Inc. (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2008).
10.7   Convertible Promissory Note of Provision Holding, Inc. (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on July 8, 2016)
10.8   12% Senior Secured Convertible Promissory Note of Provision Holding, Inc. (previously filed as an exhibit to Form 10-Q filed with the Securities and Exchange Commission on May 24, 2016)
10.9   Limited Liability Company Agreement of ProDava 3D, LLC, a Delaware Limited Liability Company, dated June 30, 2014 (incorporated by reference to the Form 10-Q, as filed with the Securities and Exchange Commission on February 16, 2016).
10.10   License Agreement, by and between Provision Holding, Inc. and ProDava 3D, LLC, dated June 30, 2014 (incorporated by reference to the Form 10-Q, as filed with the Securities and Exchange Commission on February 16, 2016).
10.11   Form of Subscription Agreement (including the Warrant), by and between Provision Holding, Inc. and various purchasers (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on April 6, 2017).
10.12   Five-year Strategic Alliance Agreement between Coinstar, LLC and Provision Holding, Inc., dated June 15, 2019 (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on June 22, 2017).
10.13   Employment Agreement, dated September 18, 2017, by and between Provision Holding, Inc. and Mark Leonard (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on September 14, 2017).
10.14   Subordinated Promissory Note between the Company and the Holder for $500,000, dated September 13, 2017 (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on September 14, 2017).
16.1   Letter from Jasper & Hill, PC, dated April 30, 2008 (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on May 6, 2008)
21   List of Subsidiaries (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2008).
31.1   Certifications Pursuant to Securities Exchange Act Rule 13a-14(a)\15d-14(a)*
32.1   Certifications pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*
99.1   Pro forma financial information (incorporated by reference to the Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2008).
     
EX-101.INS   XBRL INSTANCE DOCUMENT*
EX-101.SCH   XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
EX-101.CAL   XBRL TAXONOMY EXTENSION CALCULATION LINKBASE*
EX-101.DEF   XBRL TAXONOMY EXTENSION DEFINITION LINKBASE*
EX-101.LAB   XBRL TAXONOMY EXTENSION LABELS LINKBASE*
EX-101.PRE   XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE*

 

* Filed herewith

 

24

 

  

Item 8.  Financial Statements and Supplementary Data.

 

FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

    Page
Report of Independent Registered Public Accounting Firm   F-2
     
Consolidated Balance Sheets as of June 30, 2017 and 2016   F-3
     
Consolidated Statements of Operations for the Years Ended June 30, 2017 and 2016   F-4
     
Consolidated Statements of Shareholders’ Deficit for the Years Ended June 30, 2017 and 2016   F-5
     
Consolidated Statements of Cash Flows for the Years Ended June 30, 2017 and 2016   F-6
     
Notes to Consolidated Financial Statements   F-8

 

 F-1 

 

 

   

101 Larkspur Landing Circle

Suite 321

Larkspur, CA 94939

415-448-5061

www.rbsmllp.com

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

Provision Holding, Inc.

Chatsworth, CA 91311 

 

We have audited the accompanying consolidated balance sheet of Provision Holding, Inc. and its subsidiaries (the “Company”) as of June 30, 2017 and 2016, and the related statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended June 30, 2017. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Provision Holding, Inc. at June 30, 2017 and 2016 and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit as of June 30, 2017, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ RBSM LLP

 

Larkspur, California

October 13, 2017

 

New York City, Washington DC, San Francisco, CA, Las Vegas, NV Athens, GRE, Beijing, CHN, Mumbai and Pune IND

Member of ANTEA Alliance with affiliated offices worldwide

 

 F-2 

 

 

FINANCIAL STATEMENTS

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2017 AND 2016

 

   2017   2016 
ASSETS        
CURRENT ASSETS        
Cash  $310,749   $2,175,543 
Inventory, net   

2,201,759

    3,521,739 
Prepaid expenses   196,240    592,769 
Other current assets   3,000    3,000 
           
TOTAL CURRENT ASSETS   

2,711,748

    6,293,051 
           
PROPERTY AND EQUIPMENT, net of accumulated depreciation   17,569    26,736 
           
INTANGIBLES, net of accumulated amortization   170,229    172,725 
           
TOTAL ASSETS  $

2,899,546

   $6,492,512 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $2,753,444   $2,651,657 
Payroll taxes, interest and penalties   663,840    590,799 
Accrued interest   2,557,435    2,476,036 
Unearned revenue   2,057,607    3,419,616 
Debt settlement payable   -    16,795 
Derivative liability   408,286    188,128 
Current portion of convertible debt, net of unamortized debt discount of $660,141 and $16,980 and net of unamortized warrant discount of $79,783 and $-0- and net of financing costs of $322,229 and $-0-, respectively   7,216,032    609,905 
Notes payable, net of unamortized debt discount of $74,821 and $-0-, respectively   220,179    90,000 
           
TOTAL CURRENT LIABILITIES   15,876,823    10,042,936 
           
CONVERTIBLE DEBT, net of current portion and unamortized debt discount of $-0- and $1,291,892 and net of unamortized warrant discount of $-0- and $363,663 and net of financing costs of $-0- and $1,287, 109, respectively   -    5,805,466 
Nonconvertible series A preferred stock, related party   -    100 
           
TOTAL LIABILITIES   15,876,823    15,848,502 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, par value $0.001 per share Authorized – 4,000,000 shares Designated 1,000 Series A preferred stock, Issued and outstanding – Nil and 1,000 shares, respectively   -    - 
Common stock, par value $0.001 per share Authorized –300,000,000 shares - issued and outstanding – 134,431,613 and 89,242,624, respectively   134,432    89,242 
Common stock to be issued for services, par value $0.001 per share, 641,667 and 1,249,998, respectively   34,250    262,166 
Additional paid-in capital   28,987,431    25,100,864 
Less receivable for stock   (50,000)   (50,000)
Accumulated deficit   (42,083,390)   (34,758,262)
           
TOTAL STOCKHOLDERS’ DEFICIT   (12,977,277)   (9,355,990)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $

2,899,546

   $6,492,512 

 

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

 

 F-3 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

 

   2017   2016 
REVENUES        
Advertising revenues  $332,017   $- 
Hardware revenues   110,720    57,710 
Hardware revenues – related party   1,196,552    4,313,046 
Service related revenues – related party   -    506,695 
Software revenues – related party   66,456    136,705 
TOTAL REVENUES   1,705,745    5,014,156 
COST OF REVENUES   

1,922,611

    4,488,001 
GROSS (LOSS) PROFIT   (216,866)   526,155 
EXPENSES          
General and administrative   3,162,229    2,153,432 
Research and development   300,905    311,798 
TOTAL OPERATING EXPENSES   3,463,134    2,465,230 
LOSS FROM OPERATIONS   (3,680,000)   (1,939,075)
OTHER INCOME (EXPENSE)          
Derivative liability expense – insufficient shares   -    (85,960)
Change in fair value of derivative   63,372    18,868 
Gain on forgiveness of debt   -    597,312 
Loss on settlement of debt   (48,000)   - 
Loss on debt extinguishment   -    (2,865,234)
Amortization of debt and warrant discount and financing costs   (2,468,355)   (913,544)
Other income   -    2,053 
Interest expense   (1,192,145)   (1,017,236)
TOTAL OTHER EXPENSE   (3,645,128)   (4,263,741)
LOSS BEFORE INCOME TAXES   (7,325,128)   (6,202,816)
Income tax expense   -    - 
NET LOSS  $(7,325,128)  $(6,202,816)
NET LOSS PER COMMON SHARE          
Basic and diluted  $(0.07)  $(0.08)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING          
Basic and diluted   105,726,140    80,098,932 

 

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

 

 F-4 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

 

    Preferred A 
Stock
    Common Stock     Additional 
Paid-in
    Shares
to be
    Receivable for     Accumulated     Total 
Stockholders’
 
    Shares     Amount     Shares     Amount     Capital     Issued     Stock     Deficit     Deficit  
Balance June 30, 2015     -       -       75,483,456       75,483       19,087,584       -       (50,000 )     (28,555,446 )     (9,422,379 )
Issuance of common stock on conversion of debt and accrued interest     -       -       9,781,375       9,781       851,737       -       -       -       861,518  
Issuance of common stock for services received     -       -       1,953,333       1,954       246,979       262,166       -       -       511,099  
Issuance of common stock for warrants     -       -       1,399,460       1,399       (1,399 )     -       -       -       -  
Issuance of common stock in conjunction with warrant exercise for cash     -       -       625,000       625       24,375       -       -       -       25,000  
Issuance of preferred A shares for services received     1,000       -       -       -       -       -       -       -       -  
Derivative liability reclass to additional paid in capital upon share increase     -       -       -       -       85,960       -       -       -       85,960  
Derivative liability reclass to additional paid in capital upon notes conversion     -       -       -       -       182,701       -       -       -       182,701  
Fair value of warrants issued for finance costs     -       -       -       -       567,761       -       -       -       567,761  
Fair value of warrants issued for deferred finance cost     -       -       -       -       685,250       -       -       -       685,250  
Fair value of warrants issued in connection with convertible notes     -       -       -       -       19,183       -       -       -       19,183  
Debt discount on convertible notes     -       -       -       -       1,310,900       -       -       -       1,310,900  
Debt modification expenses     -       -       -       -       2,039,833       -       -       -       2,039,833  
Net loss for the year ended June 30, 2016     -       -       -       -       -       -       -       (6,202,816 )     (6,202,816 )
Balance, June 30, 2016     1,000     $ -       89,242,624     $ 89,242     $ 25,100,864     $ 262,166     $ (50,000 )   $ (34,758,262 )   $ (9,355,990 )
Issuance of common stock on conversion of debt and accrued interest     -       -       19,544,767       19,545       1,733,256       -       -       -       1,752,801  
Issuance of common stock for services received     -       -       4,660,605       4661       715,106       (254,166 )     -       -       465,601  
Issuance of common stock in conjunction with promissory notes as financing costs     -       -       2,925,000       2,925       170,075       -       -       -       173,000  
Issuance of common stock for cash, net     -       -       17,500,005       17,500       857,567       -               -       875,067  
Relative fair value of warrants issued with stock for cash     -       -       -       -       154,933       -       -       -       154,933  
Issuance of options for services received     -       -       -       -       16,909       -       -       -       16,909  
Common stock issued for debt settlement     -       -       400,000       400       47,600       -       -       -       48,000  
Common stock to be issued for services     -       -       -       -       -      

26,250

      -       -      

26,250

 
Issuance of warrants and common stock issued upon exercise of warrants     -       -       158,612       159       30,467       -       -       -       30,626  
Debt discount on convertible notes     -       -       -       -       34,944       -       -       -       34,944  
Derivative liability reclass to additional paid in capital upon notes conversion     -       -       -       -       125,710       -       -       -       125,710  
Repurchase of preferred stock     (1,000 )     -       -       -       -       -       -       -       -  
Net loss for the year ended June 30, 2017     -       -       -       -       -       -       -      

(7,325,128

)    

(7,325,128

)
Balance, June 30, 2017     -     $ -       134,431,613     $ 134,432     $ 28,987,431     $

34,250

    $ (50,000 )   $

(42,083,390

)   $

(12,977,277

)

 

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

 

 F-5 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

 

   2017   2016 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(7,325,128)  $(6,202,816)
Adjustments to reconcile net loss to net cash used in operating activities:          
Non-cash compensation   491,851    511,198 
Loss on debt settlement   48,000    - 
Debt modification expenses   -    2,865,234 
Gain on forgiveness of debt   -    (597,312)
Inventory write-down   32,515    - 
Depreciation expense   9,167    764 
Amortization   2,496    2,496 
Amortization of prepaid financing cost   993,380    514,207 
Amortization of prepaid expenses   396,529    - 
Amortization of debt discount   1,086,760    195,239 
Amortization of warrant discount   283,880    204,098 
Fair value of options expense   16,909    - 
Fair value of warrants expense   30,626    - 
Change in the fair value of derivative liability   (63,372)   (18,868)
Derivative liability expense – insufficient shares   -    85,960 
Non-cash interest expenses   104,334    275,041 
Changes in operating assets and liabilities:          
Accounts receivable   -    76,305 
Inventory   

1,287,465

    (2,044,472)
Prepaid expenses   -    (592,769)
Prepaid financing costs   -    (93,246)
Accounts payable and accrued liabilities   101,787    648,068 
Preferred stock liability   (100)   - 
Payroll taxes, interest and penalties   73,041    (64,647)
Accrued interest   293,870    468,350 
Unearned revenue   (1,362,009)   1,305,796 
NET CASH USED IN OPERATING ACTIVITIES   (3,497,999)   (2,461,374)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of fixed assets   -    (27,500)
Purchase of intangible assets   -    (18,100)
NET CASH USED IN INVESTING ACTIVITIES   -    (45,600)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from convertible notes payable, net of fees   415,000    4,775,469 
Payments on debt settlement   (16,795)   (201,420)
Proceeds from promissory notes   221,500    - 
Proceeds from the sale of common stock, net of fees   1,030,000    - 
Payments on convertible notes payable   -    (45,500)
Payments on promissory notes   (16,500)     
Stock issued for cash in conjunction with warrant exercise   -    25,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES   1,633,205    4,553,549 
           
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   (1,864,794)   2,046,575 
           
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR   2,175,543    128,968 
           
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR  $310,749   $2,175,543 

 

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

 

 F-6 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

 

    2017     2016  
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION            
             
Interest paid   $ 666,548     $ 254,444  
Taxes paid   $ -     $ -  
                 
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
                 
Issuance of shares of common stock for debt and accrued interest conversion   $ 1,752,801     $ 861,518  
                 
Debt discount on convertible notes   $ 34,944     $ 1,425,555  
                 
Fair value of warrant issued for debt discount and deferred financing cost   $ -     $ 1,272,194  
                 
Derivative liability expense – insufficient shares   $ -     $ 85,960  
                 
Common stock to be issued now issued   $ 254,166     $ -  
                 
Initial derivative liability on the notes issuance date   $ 409,240     $ 389,697  
                 
Derivative liability reclass into additional paid in capital upon notes conversion   $ 125,710     $ 182,701  
                 
Proceed from convertible notes directly paid to accounts payable balance   $ -     $ 96,581  
                 
Re-class accrued interest into convertible debt   $ -     $ 368,947  
                 
Stock issued in conjunction with cashless warrant exercise   $ 159     $ -  
                 
Stock issued in conjunction with promissory notes accounted for as financing costs   $ 173,000     $ -  

 

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

 

 F-7 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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 consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company had accumulated deficit at June 30, 2017 of $42,083,390. The Company has negative working capital of $13,165,075 as of June 30, 2017. Additionally, the Company has approximately $8,573,185 convertible debt and promissory notes currently due. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The 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.

 

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 year ended June 30, 2017 compared to what was previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

 

Basis of comparison

 

Certain prior-period amounts have been reclassified to conform to the current period presentation. None of the reclassification had an impact on net loss or shareholder equity.

 

 F-8 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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 June 30, 2017 and 2016, the Company’s cash and cash equivalents were on deposit in federally insured financial institutions, and at times may exceed federally insured limits.

 

Accounts Receivable

 

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

 

Inventories

 

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

 

Property and Equipment

 

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

 

Intangibles

 

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

 

Impairment of Long-Lived Assets

 

Intangible assets that are not subject to amortization shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the fair value of an intangible asset with its carrying amount, as defined. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. There was no impairment loss recognized during the years ended June 30, 2017 and 2016.

 

The carrying value of long-lived assets, including amortizable intangibles and property and equipment, are evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets. Impairment is deemed to have occurred if projected undiscounted cash flows associated with an asset are less than the carrying value of the asset. The estimated cash flows include management’s assumptions of cash inflows and outflows directly resulting from the use of that asset in operations. The amount of the impairment loss recognized is equal to the excess of the carrying value of the asset over its then estimated fair value. There was no impairment loss recognized during the years ended June 30, 2017 and 2016.

 

 F-9 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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.

 

The Company amortizes is intangible assets using the straight-line method with estimated useful lives of 80 years. For federal income tax purposes, amortization is computed using the straight-line method. 

 

Shipping and Handling Costs

 

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

 

Unearned Revenue

 

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

 

Significant Customers

 

During the year ended June 30, 2017, the Company had two customers which accounted for more than 10% of the Company’s revenues (74% and 19%, respectively). During the year ended June 30, 2016 the Company had one customer which accounted for more than 10% of the Company’s revenues (98%). As of June 30, 2016, the Company had no accounts receivable balance. As of June 30, 2017, the Company had no accounts receivable balance.

 

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 years ended June 30, 2017 and 2016, the Company incurred $300,905 and $311,798, respectively for research and development expense which are included in the 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 June 30, 2017 and 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.

 

 F-10 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

The following table provides a summary of the carrying value of the Company’s Promissory Notes, as of June 30, 2017:

 

Balance at June 30, 2015   $ 3,112,943  
Issuance of notes     5,417,800  
Deferred financing and debt and warrants discount on convertible notes     (3,336,746 )
Debt increase due to modification     825,401  
Accretion of debt and warrant discount and prepaid financing costs     913,544  
Re-class to accrued interest and customer deposit into convertible notes payable     368,947  
Issuance of shares of common stock for convertible debt     (859,018 )
Payments on convertible notes payable     (27,500 )
Balance at June 30, 2016   $ 6,415,371  
Issuance of notes – net of financing costs     415,000  
Deferred financing and debt and warrants discount on convertible notes     (304,906 )
Debt discount on convertible notes     (34,944)  
Accretion of debt and warrant discount and prepaid financing costs     2,265,841  
Issuance of shares of common stock for convertible debt     (1,540,330 )
Balance June 30, 2017   $ 7,216,032  

 

There is no active market for the debt and the fair value was based on the delayed payment terms, the warrants issued as consideration of the debt issuance, the interest rate and the common stock issued as consideration of the debt issuance in addition to other facts and circumstances at the end of June 30, 2017 and 2016. The Company did not recognize a gain or loss on the valuation of debt during the years ended June 30, 2017 and 2016.

 

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

 

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

 

   Carrying   Fair Value Measurements 
Using Fair Value Hierarchy
 
   Value   Level 1   Level 2   Level 3 
Derivative liability – June 30, 2017  $408,286   $             -   $             -   $408,286 
Derivative liability – June 30, 2016  $188,128   $-   $-   $188,128 

 

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.

 

 F-11 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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   389,697 
Derivative liability reclass into additional paid in capital upon notes conversion   (182,701)
Change in fair value of derivative at period end   (18,868)
Balance at June 30, 2016  $188,128 
Derivative liability reclass into additional paid in capital upon notes conversion   (125,710)
Initial measurement at issuance date of the notes   409,240 
Change in fair value of derivative at year end   (63,372)
Balance June 30, 2017  $408,286 

 

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.

  

Accounting for Stock Option Based Compensation

 

The Company calculates compensation costs for all share-based awards to employees based on the grant date fair value of those awards and recognized over the period during which the employee is required to perform services in exchange for the award (generally over the vesting period of the award).

 

Income Taxes

 

The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. They are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

The Company records uncertain tax positions when they become evident. The Company recognizes in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. Under these provisions, the Company must assume that the taxing authority will examine the income tax position and will have full knowledge of all relevant information. For each income tax position that meets the more likely than not recognition threshold, the Company then assesses the largest amount of tax benefit that is greater than 50 percent likely of being realized upon effective settlement with the taxing authority. Unrecognized tax positions, if ever recognized in the financial statements, are recorded in the statement of operations as part of the income tax provision. The Company's policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax provision. The Company did not identify any uncertain tax positions as of June 30, 2017. The Company remains subject to examination by the Federal and State tax authorities since inception through June 30, 2017.

 

 F-12 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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 June 30, 2017, the Company had debt instruments, options and warrants outstanding that can potentially be converted into approximately 116,551,949 shares of common stock.

 

Anti-dilutive securities not included in diluted loss per share relating to:      
Warrants outstanding     333,333  
Options vested and outstanding     -  
Convertible debt and notes payable including accrued interest     14,326,286  

 

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.

 

 F-13 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

Recent Accounting Pronouncements

 

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

 

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

 

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

 

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

 

 F-14 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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

 

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

 

There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net)” was issued in March 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “Identifying Performance Obligations and Licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs.

 

In January 2017, the FASB issued ASU 2017-04 which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for an interim or annual goodwill impairment test performed with a measurement date after January 1, 2017. The Company does not anticpate any material impact from the adoption of ASU 2017-04 on its results of operations, statement of financial position or financial statement disclosures.

 

In May 2017, the FASB issued ASU No. 2017-09 “Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting (ASU 2017-09).” ASU 2017-09 clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of its adoption of this standard on its financial statements.

 

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The Company has not yet determined the effect that ASU 2017-11 will have on its results of operations, statement of financial position or financial statement disclosures.

 

 F-15 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

FASB ASU 2014-12, “Compensation - Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” was issued June 2014. This guidance was issued to resolve diversity in accounting for performance targets. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition and should not be reflected in the award’s grant date fair value. Compensation cost should be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. This update did not have a significant impact upon early adoption.

 

FASB ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” was issued September 2014. This provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company does not have any significant impact upon adoption.

 

FASB ASU 2015-11, “Simplifying the Measurement of Inventory” was issued in July 2015. This requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The ASU will not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For public business entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Upon transition, entities must disclose the nature of and reason for the accounting change. The Company does not anticipate a significant impact upon adoption.

 

FASB ASU No. 2015-15, Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” was issued in August 2015 which permits an entity to report deferred debt issuance costs associated with a line-of-credit arrangement as an asset and to amortize such costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings under the credit line. The ASU applies to all entities and is effective for public business entities for annual periods beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The guidance should be applied on a retrospective basis. The Company did not have any significant impact upon adoption.

 

FASB ASU 2015-17, “Income Taxes Balance Sheet Classification of Deferred Taxes” was issued in November 2015. This requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position and applies to all entities that present a classified statement of financial position. For public entities, this update is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not anticipate a significant impact upon adoption.

 

FASB ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)” was issued in June 2016.  This ASU amends the Board’s guidance on the impairment of financial instruments. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption will be permitted.  The Company does not anticipate a significant impact upon adoption.

 

 F-16 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

NOTE 2 INVENTORY

 

Inventory consists of raw materials; work in process and finished goods. The Company’s inventory is stated at the lower of cost or market on a First-in-First out basis.

 

The carrying value of inventory consisted of the following:

 

   June 30,
2017
   June 30,
2016
 
         
Raw materials  $30,227   $26,619 
Finished goods   2,328,897    3,652,485 
    2,359,124    3,679,104 
Less Inventory reserve   (157,365)   (157,365)
Total  $2,201,759   $3,521,739 

 

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

 

NOTE 3 PREPAID EXPENSES

 

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

 

NOTE 4 PROPERTY and EQUIPMENT, net

 

Property and equipment consists of the following:

 

   June 30,
2017
   June 30,
2016
 
         
Furniture and fixtures  $12,492   $12,492 
Computer equipment   39,180    39,180 
Equipment   4,493    4,493 
    56,165    56,165 
Less accumulated depreciation   (38,596)   (29,429)
Total  $17,569   $26,736 

 

The aggregate depreciation charge to operations was $9,167 and $ 764 for years ended June 30, 2017 and 2016, respectively. The depreciation policies followed by the Company are described in Note 1.

 

NOTE 5 PREPAID FINANCING COSTS

 

The Company pays financing costs to consultants and service providers related to certain financing transactions. The financing costs are then amortized over the respective life of the financing agreements. As such, the Company has unamortized prepaid financing costs of $322,229 and $1,287,109 at June 30, 2017 and 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 $993,380 and $514,207 for years ended June 30, 2017 and 2016, respectively.

 

 F-17 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

NOTE 6 INTANGIBLES, net of accumulated amortization

 

Intangibles consist of the following:

 

   June 30,
2017
   June 30,
2016
 
         
Patents in process  $142,116   $142,116 
Patents issued   58,037    58,037 
    200,153    200,153 
           
Less accumulated amortization   (29,924)   (27,428)
           
Total  $170,229   $172,725 

 

The aggregate amortization expense charged to operations was $2,496 and $2,496 for years ended June 30, 2017 and 2016, respectively. The amortization policies followed by the Company are described in Note 1.

 

As of June 30, 2017, the estimated future amortization expense related to finite-lived intangible assets was as follows:

 

Fiscal year ending,    
June 30, 2018  $2,496 
June 30, 2019   2,496 
June 30, 2020   2,496 
June 30, 2021   2,496 
June 30, 2022   2,496 
Thereafter   157,749 
      
Total  $170,229 

 

NOTE 7 DEBT SETTLEMENT

  

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

 

During January 2017, the Company settled a prior debt. According to the settlement agreement, the Company is required to issue 400,000 shares of common stock to the recipient. The shares were valued at $48,000 and the Company has recorded the same as expense in the statement of operations for the year ended June 30, 2017. 

 

 F-18 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

NOTE 8 CONVERTIBLE DEBT

 

Convertible debt consists of the following:

 

    June 30, 
2017
    June 30,
2016
 
             
Convertible notes payable, annual interest rate of 10% to 12%, due dates range from May 2010 to February 2019 and convertible into common stock at a rate of $0.04 to $1.00 per share. $1,306,855 of these notes are in default.   $ 7,528,185     $ 8,625,015  
Convertible note payable, annual interest rate of 10%, convertible into common stock at a rate of $1.00 per share and due July 2017.     750,000       750,000  
Unamortized prepaid financing costs     (322,229 )     (1,287,109 )
Unamortized warrants discount to notes     (79,783 )     (363,663 )
Unamortized debt discount     (660,141 )     (1,308,872 )
      7,216,032       6,415,371  
Less current portion     (7,216,032 )     (609,905 )
Convertible debt, net of current portion and debt discount   $ -     $ 5,805,466  

 

During the year ended June 30, 2017 holders of the Notes converted $1,752,801 including accrued interest value into 19,544,767 shares of the Company's common stock. The determined fair value of the debt derivatives of $125,710 was reclassified into equity during the year ended June 30, 2017.

 

As of June 30, 2016, the Company has $526,885 of convertible debt that is in default and past the due date. These debts are included in the $609,905 of current portion of notes payable, net of discounts.

 

During the year ended June 30, 2016, the Company issued $5,417,800 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 subscriber 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 $4,775,468, balance $545,780 was shown as deferred financing cost and $96,552 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 year ended June 30, 2016, the Company issued warrants to placement agents at exercise price of $0.15 per share which was valued at $685,250 and recorded as deferred financing cost.

 

For the year ended June 30, 2016, the Company charged $514,207 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.

 

 F-19 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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 lower than the stock price on issuance dates, and therefore, the Company determined that the instrument’s effective conversion price was in-the-money at the instrument’s commitment date (a “beneficial conversion feature”). The intrinsic value of the conversion option (beneficial conversion feature) is $1,310,900, and the Company recorded $1,310,900 beneficial conversion feature to additional paid in capital.

 

During the year ended June 30, 2016 the certain holders of the Note converted $579,500 including accrued interest value into 6,961,195 shares of the Company’s common stock.

 

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. The Company determined fair value of new debt $535,834 and fair value of warrants $91,317 as a result was recorded $345,133 as a loss on debt extinguishment during the year ended June 30, 2016. On June 30, 2016 the holder of the Note converted $282,018 full face value into 2,820,180 shares of the Company’s common stock. The balance on the Note as of June 30, 2016 is $-0-.

 

On June 30, 2016, the Company entered into an agreement, effective May 18, 2016, to exchange promissory notes held by two noteholders for promissory notes and warrants. The original notes (“Original Notes”) had a principal balance of $140,000 with accrued interest of $84,599, subject to a substantial increase if default provisions of the Original Notes, which the Company disputed, were applied. The principal and interest total of $224,599, subject to a substantial increase if default provisions of the Original Notes which the Company disputed were applied was convertible at $0.03 per share. The Original Notes were exchanged for promissory notes (“New Notes”) with a conversion price of $0.10 per share and interest rate of 12% and a principal balance of $1,050,000, a discount to the mandatory default amount of the Original Notes claimed by the noteholders, which the Company disputed,. The holders of the New Notes will also receive warrants to purchase the Company’s common stock, equal to 20% of the initial convertible amount of the New Notes, at an exercise price of $0.15 per share. The Company determined fair value of new debt $2,310,000 and fair value of warrants $434,700 as a result was recorded $2,520,100 as a loss on debt extinguishment during the year ended June 30, 2016. The balance on the Note as of June 30, 2016 is $1,050,000 ($825,401 increase in principal notes balance was included in loss on debt extinguishment).

 

For the years ended June 30, 2017 and 2016, $283,880 and $204,098 were expensed in the statement of operation as amortization of warrant discount and shown as interest expenses, respectively. For the years ended June 30, 2017 and 2016, $988,581 and $195,239 was amortized of debt discount and shown as interest expenses, respectively.

 

The aggregate amortization of prepaid financing cost charged to operations was $993,380 and $514,207 for years ended June 30, 2017 and 2016, respectively.

 

Accrued and unpaid interest for convertible notes payable at June 30, 2017 and 2016 was $2,525,362 and $2,449,508, respectively.

 

For the years ended June 30, 2017 and 2016, $924,890 and $586,306, was charged as interest on debt and shown as interest expenses, respectively.

 

 F-20 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

NOTE 9 DERIVATE 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 year ended June 30, 2017, the above note was fully converted into shares and hence, now onwards no further derivative liability needs to accrue related to this note.

 

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

 

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

 

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

 

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

 

 F-21 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

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

 

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

 

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

  

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

 

On April 19, 2017, the Company issued a $60,000 convertible debenture. The note bears interest at 12%, is due on April 19, 2019 and, is convertible into shares of the Company’s common stock at $0.06 per share along with 200,000 warrants issued. The Exercise Price of each Warrant is $0.09 per share. Each Warrant expires five years after issuance. The Exercise Price may be adjusted for any merger, stock split or dividend.

 

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 $7,449 using Black- Scholes model, as the fair value of convertible promissory notes on commitment date was $7,449. The effective conversion price is calculated, which is lower than the stock price on issuance dates, and therefore, the Company determined that the instrument’s effective conversion price was in-the-money at the instrument’s commitment date (a “beneficial conversion feature”). The intrinsic value of the conversion option (beneficial conversion feature) is $27,449, and the Company recorded $27,449 beneficial conversion feature to additional paid in capital.

 

On June 23, 2017, the holder converted the principal of $60,000 and accrued interest of $1,282 into 1,021,367 shares of the Company’ common stock.

 

During the years ended June 30, 2017 and 2016, the Company recorded the loss (gain) in fair value of derivative $(63,372) and $(18,868), respectively. 

 

For the years ended June 30, 2017 and 2016, $185,066 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 year 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   389,697 
Derivative liability reclass into additional paid in capital upon notes conversion   (182,701)
Change in fair value of derivative at period end   (18,868)
Balance at June 30, 2016  $188,128 
Derivative liability reclass into additional paid in capital upon notes conversion   (125,710)
Initial measurement at issuance date of the notes   409,240 
Change in fair value of derivative at year end   (63,372)
Balance June 30, 2017  $408,286 

 

 F-22 

 

 PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

NOTE 10 NOTES PAYABLE

 

The following table provides a summary of the changes of the Company’s Promissory Notes liabilities as of June 30, 2017:

 

Balance at June 30, 2015  $108,000 
Repayments on promissory notes   (18,000)
Balance at June 30, 2016  $90,000 
Issuance of notes –   221,500 
Debt discount / finance cost on notes   (173,000)
Repayments on promissory notes   (16,500)
Accretion of debt discount /financing costs   98,179 
Balance June 30, 2017  $220,179 

 

During the year ended June 30, 2017, the Company entered into eleven promissory notes with investors pursuant to which the Company issued eleven promissory notes in the principal amount of $221,500. The notes accrue interest at a rate of 5% per annum and mature in 120 days. As additional consideration, the Company issued the investors 2,925,000 shares of common stock. The value of the stock consideration was limited to the value of the individual promissory notes, for a total of $173,000. The stock consideration was recorded as a discount against the notes. For the years ended June 30, 2017 and 2016, $98,179 and $-0-, respectively, was expensed in the statement of operations as amortization of debt discount related to the notes and show as interest expenses. The unamortized debt discount was $74,821 and $-0- at June 30, 2017 and 2016, respectively.

 

At June 30, 2017 and 2016, $295,000 and $90,000, respectively, of debt was outstanding with interest rates of 5% to 8%.

 

Accrued and unpaid interest for these notes payable at June 30, 2017 and 2016 were $32,074 and $26,528, respectively.

 

For the years ended June 30, 2017 and 2016, $6,046 and $6,450 was charged as interest on debt and shown as interest expenses, respectively.

 

NOTE 11 COMMITMENTS

  

Lease Agreement - The Company leases its office space under a month-to-month lease. Rent expense was $98,158 and $69,313 for the years ended June 30, 2017 and 2016, respectively. On March 2, 2016, the Company entered into an Amendment to Lease in order to extend the current lease through March 31, 2019. The lease calls for monthly rent of $6,719 per month for the period of April 1, 2016 through March 31, 2017. The monthly rent increases 4% for each of the next two years.

 

The future minimum payments under this lease are as follows:

 

Fiscal year ending, June 30:    
2018  $84,696 
2019   65,412 
      
Total  $150,108 

 

The Company is delinquent in remitting its payroll taxes to the applicable governmental authorities. Total due, including estimated penalties and interest is $663,840 and $590,799 at June 30, 2017 and 2016, respectively.

 

On June 15, 2017, the Company entered into a five year Strategic Alliance Agreement (the “Agreement”) with Coinstar, LLC (“Coinstar”). Coinstar owns and operates approximately 17,000 self-service coin counting kiosks at retailer store locations in the United States.

 

The Company and Coinstar will work jointly to develop and integrate the Company’s free standing patented 3D holographic display systems, known as HoloVision™ (the “Systems”) into Coinstar’s kiosks, and will be installed and promoted at retailer store locations, the specifics of which will be mutually agreed to and summarized in a separate agreement (each a “Statement of Work”). The Systems will have a proprietary coupon/loyalty card software application and provide advertising and promotions through Coinstar kiosks. For all retailer store locations in which Coinstar kiosks are installed, Coinstar has been granted an exclusive first right of refusal to include such locations.

 

The Company shall pay to Coinstar, and Coinstar shall pay to participating retailers a specified percentage of monthly Net Advertising Revenues, per kiosk (the “Promotion Retailer Commission”) included in a Statement of Work, which shall be determined by mutual agreement of Coinstar and Provision. “Net Advertising Revenues” is defined as gross advertising revenues from Systems less any operational expenses incurred in connection with such Systems (for example: cost of paper, service, network connectivity, network administration). The Company shall evenly divide the remaining monthly Net Advertising Revenues after deducting the Promotion Retailer Commission).

 

Under the agreement, Provision and Coinstar will integrate Provision’s patented 3D “Holovision” display systems into Coinstar kiosks nationwide. The Provision 3D holographic display will “bolt-on” to the top of the existing Coinstar kiosk as a “topper”. Our couponing and loyalty card system software will be integrated into the Coinstar touch-screen interface. The firms will evenly divide the monthly net advertising revenues, after deducting promotional retailer commissions. Provision believes that the monthly advertising revenue potential in this channel should exceed that of a retail pharmacy chain.

 

The Provision “topper” has been designed by an award winning industrial designer, and we plan to assemble the prototype beginning in August, 2017. The software teams have begun the required integration work, and we anticipate a working prototype in October, 2017. We have targeted up to 300 locations for rollout by December 31, 2017, with broader deployment scheduled for the 2018 calendar year. 

 F-23 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

NOTE 12  EQUITY

 

Preferred Stock

 

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

 

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

 

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

 

During the year ended June 30, 2017, the Company repurchase the said 1,000 Preferred Stock at par value of $100. Preferred shares issued and outstanding at June 30, 2017 were Nil. 

  

Common Stock

 

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

 

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

 

As of June 30, 2017 and 2016, there were 134,431,613 and 89,242,624 shares of common stock issued and outstanding, respectively.

 

During the year ended June 30, 2017, the Company issued 7,585,605 shares of common stock in exchange for consulting services valued at $892,767, out of which $254,166 relates to prior period services and stock to be issued 541,667 shares of common stock in exchange for services valued at $36,250.

 

 F-24 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

During the year ended June 30, 2017 the Company issued 19,544,767 shares of its common stock in conversion of $1,752,801 debt and accrued interest.

 

During January 2017 the Company settled a prior debt. According to the settlement agreement, the Company is required to issue 400,000 shares of common stock to the recipient. The shares were valued at $48,000 and the Company has recorded the same as expense in the statement of operations for the year ended June 30, 2017.

 

On March 31, 2017, the Company accepted and entered into Subscription Agreements (the “Subscription Agreements”) for 13,333,339 shares of Company’s common stock with 15 accredited investors (the “Investors”) for an aggregate purchase price of $800,000 at a price of $0.06 per share. Each Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.09 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Warrants are valued at $154,933. Net cash received after fees of $20,000, the warrant valuation of $154,933 was $625,067.

 

On June 19, 2017, the Company accepted and entered into a Subscription Agreement (the “Subscription Agreement”) for 4,166,666 shares of Company’s common stock with an accredited investor (the “Investor”) for an aggregate purchase price of $250,000 at a price of $0.06 per share. The Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.12 per share and are exercisable for three-years from the date of issuance of the Warrant. The Warrants are valued at $37,250. Net cash received was $250,000.

 

During the year ended June 30, 2017 the Company issued 158,612 shares of its common stock per the exercise of cashless warrants.

 

During the year ended June 30, 2016, the Company issued 1,953,333 shares of common stock in exchange for consulting services valued at $248,933 and stock to be issued 1,249,997 shares of common stock in exchange for services valued at $262,166.

  

During the year ended June 30, 2016 the Company issued 9,781,375 shares of its common stock in payment of $861,518 debt and accrued interest.

 

During the year ended June 30, 2016 the Company issued 625,000 shares of its common stock per the exercise of warrants for $25,000.

 

During the year ended June 30, 2016 the Company issued 1,399,460 shares of its common stock per the exercise of cashless warrants.

 

Warrants

 

Warrant activity during the years ended June 30, 2017 and 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   20,529,386    0.13    - 
Exercised   (2,883,616)   0.06    - 
Expired   -    -    - 
Outstanding and exercisable at June 30, 2016   26,396,958   $0.14   $3,695,574 
Granted   4,075,000    0.09    - 
Exercised  (1)   (375,000)   0.07    - 
Expired   (1,050,000)   0.05    - 
Outstanding and exercisable at June 30, 2017   29,046,958   $0.14   $4,011,963 

 

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

 

 F-25 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

During the year ended June 30, 2017, the Company issued 375,000 warrants and recorded $30,626 of stock compensation expense.

 

On March 31, 2017, the Company accepted and entered into Subscription Agreements (the “Subscription Agreements”) for 13,333,339 shares of Company’s common stock with 15 accredited investors (the “Investors”). Each Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.09 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Company issued 2,666,667 warrants are valued at $154,933.

 

On June 19, 2017, the Company accepted and entered into a Subscription Agreement (the “Subscription Agreement”) for 4,166,666 shares of Company’s common stock with an accredited investor (the “Investor”). The Investor received warrants to purchase shares of Common Stock equal to 20% of the shares each purchased (the “Warrants”). The Warrants have an exercise price of $0.12 per share and are exercisable for three-years from the date of issuance of the Warrant.  The Company issued 833,333 warrants are valued at $37,250.

 

On April 19, 2017, the Company issued a $60,000 convertible debenture. The note bears interest at 12%, is due on April 19, 2019 and, is convertible into shares of the Company’s common stock at $0.06 per share along with 200,000 warrants issued (see Note 9).

 

The fair value of the described above warrants during the year ended June 30, 2017, was determined using the Black-Scholes Model with the following assumptions:

 

(1) risk free interest rate of   0.44%; 
(2) dividend yield of   0%; 
(3) volatility factor of   151%; 
(4) an expected life of the conversion feature of   3 months, and 
(5) estimated fair value of the company’s common stock of   $0.12 per share. 

 

During the year ended June 30, 2016, the Company issued warrants to purchase 13,499,636 shares of common stock in connection with convertible notes. These warrants have an exercise price of $0.06 to $0.15 per share and expire within three to five years from the date of issue and the same was accounted as warrant discount and valued $567,761 as of June 30, 2016 (see Note 8).

 

During the year ended June 30, 2016, the Company issued warrants to purchase 6,732,800 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 $685,250 as of June 30, 2016 (see Note 8).

 

During the year ended June 30, 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 June 30, 2016.

 

During the year ended June 30, 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.

 

During the year ended June 30, 2016 the Company issued 625,000 shares of its common stock per the exercise of 625,000 warrants for $25,000.

 

 F-26 

 

 

PROVISION HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

 

The fair value of the described above warrants during the year ended June 30, 2016, 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%-158%; 
(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

 

Stock option activity during the years ended June 30, 2017 is as follows:

 

   Stock Options   Weighted-
Average 
Exercise Price
   Aggregate
Intrinsic
Value
 
Outstanding at June 30, 2016   -   $-   $- 
Granted   150,000    0.26    38,500 
Exercised   -    -    - 
Expired   -    -    - 
Outstanding June 30, 2017   150,000   $0.26   $38,500 
Exercisable at June 30, 2017   121,000   $0.26   $31,050 
Un-exercisable at June 30, 2017   29,000   $0.26   $7,440 

 

The Company has one stock option plan:  The Provision Interactive Technologies, Inc. 2002 Stock Option and Incentive Plan, (the “Plan”). As of June 30, 2017, there were 3,324,149 shares available for issuance under the Plan.  The Plan is administered by the Company’s Board of Directors, (the “Board”).

 

As of June 30, 2017, the Plan provides for the granting of non-qualified and incentive stock options to purchase up to 5,000,000 shares of common stock. Options vest at rates set by the Board, not to exceed five years and are exercisable up to ten years from the date of issuance. The option exercise price is set by the Board at time of grant. Options and restricted stock awards may be granted to employees, officers, directors and consultants.

 

During the years ended June 30, 2017 and 2016, the Company issued 150,000 and -0- options and recorded $16,909 and $-0- of stock compensation expense, respectively.

 

The fair value of options exercised in the years ended June 30, 2017 and 2016 was approximately $-0- and $-0-, respectively.