UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
x
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2009
OR
o
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from __________ to __________
COMMISSION
FILE NUMBER 333-127347
PROVISION
HOLDING, INC.
(Exact
Name of registrant as specified in its charter)
|
Nevada
|
20-0754724
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
9253 Eton Avenue,
Chatsworth, California 91311
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone Number:
(818)
775-1624
Check
whether the issuer (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
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
Non-accelerated
filer
o
(do
not check if smaller reporting company)
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
As
of November 20, 2009, the issuer had 27,822,644 outstanding shares of
common stock.
TABLE
OF CONTENTS
PART
I
|
|
Page
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
3
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and June
30, 2009
|
3
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the three months ended September
30, 2009 and 2008 (Unaudited)
|
4
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the three months ended September
30, 2009 and 2008 (Unaudited).
|
5
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements September 30, 2009
(Unaudited)
|
7
|
|
|
|
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
11
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
18
|
|
Item
4T.
|
Controls
and Procedures
|
18
|
|
|
PART
II
|
|
|
Item
1.
|
Legal
Proceedings
|
19
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
|
Item
5.
|
Other
Information
|
19
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
|
|
SIGNATURES
|
20
|
PROVISION
HOLDING, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
September
30, 2009 (Unaudited)
|
|
|
June
30, 2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
19,339
|
|
|
Accounts
receivable
|
|
|
41,500
|
|
|
|
-
|
|
|
Inventory
|
|
|
226,213
|
|
|
|
222,712
|
|
|
Prepaid
expenses
|
|
|
104,187
|
|
|
|
106,875
|
|
|
Investments
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
374,900
|
|
|
|
351,926
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUIPMENT
, net of
accumulated depreciation
|
|
|
426,449
|
|
|
|
472,715
|
|
|
|
|
|
|
|
|
|
|
|
|
PREPAID
FINANCING COSTS
|
|
|
74,091
|
|
|
|
93,781
|
|
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLES
, net of
accumulated amortization
|
|
|
174,025
|
|
|
|
174,649
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,049,465
|
|
|
$
|
1,093,071
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
739,397
|
|
|
$
|
599,835
|
|
|
Accrued
interest
|
|
|
649,188
|
|
|
|
571,417
|
|
|
Unearned revenue
|
|
|
119,488
|
|
|
|
71,557
|
|
|
Loss
contingency payable
|
|
|
592,312
|
|
|
|
592,312
|
|
|
Current
portion of convertible debt, net of debt discount
|
|
|
1,605,687
|
|
|
|
921,881
|
|
|
Notes
payable, current portion
|
|
|
145,000
|
|
|
|
138,000
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
3,851,072
|
|
|
|
2,895,002
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE DEBT,
net of
current portion and debt discount
|
|
|
54,667
|
|
|
|
219,805
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
3,905,739
|
|
|
|
3,114,807
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.001 per share
|
|
|
|
|
|
|
|
|
|
Authorized
– 4,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding – 0 shares
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock, par value $0.001 per share
|
|
|
|
|
|
|
|
|
|
Authorized
– 100,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding – 27,637,644 and 26,465,372, respectively
|
|
|
27,637
|
|
|
|
26,465
|
|
|
Additional
paid-in capital
|
|
|
12,455,014
|
|
|
|
12,198,454
|
|
|
Less receivable
for stock
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
|
Accumulated
deficit
|
|
|
(15,288,925
|
)
|
|
|
(14,196,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(2,856,274
|
)
|
|
|
(2,021,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
1,049,465
|
|
|
$
|
1,093,071
|
|
The
accompanying notes are an integral part of the financial statements
PROVISION
HOLDING, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
54,419
|
|
|
$
|
266,327
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
22,047
|
|
|
|
129,323
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
32,372
|
|
|
|
137,004
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
473,712
|
|
|
|
440,301
|
|
|
Research
and development
|
|
|
|
|
|
33,971
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
EXPENSES
|
|
520,292
|
|
|
|
474,272
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS)
FROM OPERATIONS
|
|
(487,920
|
)
|
|
|
(337,268
|
)
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Unrealized
loss on securities
|
|
-
|
|
|
|
(3,000
|
)
|
|
Interest
expense
|
|
(604,350
|
)
|
|
|
(170,887
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
(604,350
|
)
|
|
|
(173,887
|
)
|
|
|
|
|
|
|
|
|
|
|
(LOSS)
BEFORE INCOME TAXES
|
|
(1,092,270
|
)
|
|
|
(511,155
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS)
|
$
|
(1,092,270
|
)
|
|
$
|
(511,155
|
)
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
COMMON
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
27,257,439
|
|
|
|
24,446,353
|
|
The
accompanying notes are an integral part of the financial statements
PROVISION
HOLDING, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
|
|
|
2009
|
|
|
2008
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(1,092,270
|
)
|
|
$
|
(511,155
|
)
|
|
Adjustments
to reconcile net (loss) to net cash
|
|
|
|
|
|
|
|
|
|
(used)
by operating activities:
|
|
|
|
|
|
|
|
|
|
Non-cash
compensation
|
|
|
-
|
|
|
|
36,313
|
|
|
Stock
issued for services
|
|
|
189,794
|
|
|
|
-
|
|
|
Depreciation
expense
|
|
|
25,984
|
|
|
|
38,546
|
|
|
Amortization
|
|
|
624
|
|
|
|
624
|
|
|
Unrealized
loss on securities
|
|
|
|
|
|
|
3,000
|
|
|
Amortization
of debt discount
|
|
|
503,669
|
|
|
|
85,992
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(41,500)
|
|
|
|
(19,884)
|
|
|
Inventory
|
|
|
16,781
|
|
|
|
17,335
|
|
|
Prepaid
financing costs
|
|
|
52,628
|
|
|
|
27,068
|
|
|
Prepaid
expenses
|
|
|
2,688
|
|
|
|
-
|
|
|
Accounts
payable and accrued liabilities
|
|
|
139,561
|
|
|
|
(27,285)
|
|
|
Accrued
interest
|
|
|
77,771
|
|
|
|
44,766
|
|
|
Unearned
revenue
|
|
|
47,931
|
|
|
|
-
|
|
|
NET
CASH (USED) BY OPERATING ACTIVITIES
|
|
|
(76,339
|
)
|
|
|
(304,680
|
)
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
-
|
|
|
|
(39,772
|
)
|
|
Patents
|
|
|
-
|
|
|
|
(3,306)
|
|
|
NET
CASH (USED) BY INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
(43,078
|
)
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable, net of fees
|
|
|
57,000
|
|
|
|
313,450
|
|
|
Prepayments
of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
57,000
|
|
|
|
313,450
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) IN CASH
|
|
|
|
|
|
|
|
|
|
AND
CASH EQUIVALENTS
|
|
|
(19,339
|
)
|
|
|
(34,308
|
)
|
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
AT
THE BEGINNING OF
THE
PERIOD
|
|
|
19,339
|
|
|
|
287,641
|
|
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
AT
THE END OF THE PERIOD
|
|
$
|
-
|
|
|
$
|
253,333
|
|
The
accompanying notes are an integral part of the financial statements
PROVISION
HOLDING, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF
|
|
|
|
|
|
|
|
CASH
FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
12,500
|
|
|
Taxes
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the financial statements
PROVISION
HOLDING, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
NOTE
1 ORGANIZATION AND BASIS OF PRESENTATION
Basis
of Presentation
Preparation
of Interim Condensed Consolidated Financial Statements
These
interim condensed consolidated financial statements for the periods ended
September 30, 2009 and 2008 have been prepared by the Company's management,
without audit in accordance with accounting principles generally accepted in the
United States of America and pursuant to the rules and regulations of the United
States Securities and Exchange Commission ("SEC"). In the opinion of management,
these interim condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments, unless otherwise
noted) necessary to present fairly the Company's financial position, results of
operations and cash flows for the fiscal periods presented. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted in these interim financial statements
pursuant to the SEC's rules and regulations, although the Company's management
believes that the disclosures are adequate to make the information presented not
misleading. The financial position, results of operations and cash flows for the
interim periods disclosed herein are not necessarily indicative of future
financial results. These interim condensed consolidated financial statements
should be read in conjunction with the annual financial statements and the notes
thereto included in the Company's most recent Annual Report on Form 10K for the
fiscal year ended June 30, 2009. The balance sheet at
June 30, 2009 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements.
The
Company has evaluated subsequent events through November 23, 2009, the date
these consolidated condensed financial statements were issued.
Going Concern
These
financial statements are presented on the basis that the Company is a going
concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The Company has incurred a loss of approximately $1,100,000 in
the current period and has negative working capital of approximately $3,500,000.
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
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.
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.
Basic
and Diluted Income (Loss) per Share
In
accordance with SFAS No. 128, “Earnings Per Share,” basic income (loss) per
common share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding.
Diluted income (loss) per common share is computed similar to basic income per
common share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
As of September 30, 2009, the Company had debt instruments outstanding that can
potentially be converted into 4,385,356 shares of common stock.
PROVISION
HOLDING, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
Recent
Accounting Pronouncements
In the
first quarter of fiscal 2009, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements, (“SFAS No. 157”) for all
financial assets and financial liabilities and for all non-financial assets and
non-financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value, and enhances fair value
measurement disclosure. The adoption of SFAS No. 157 did not have a significant
impact on our consolidated financial statements, and the resulting fair values
calculated under SFAS No. 157 after adoption were not significantly different
than the fair values that would have been calculated under previous
guidance.
In
February 2007, the FASB issued SFAS 159,
The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement
No. 115 (ASC 825)
. SFAS 159 permits companies to measure
certain financial instruments and other items at fair value. We have not elected
the fair value option applicable under SFAS 159.
In
October 2008, the Financial Accounting Standards Board (“FASB”) issued Financial
Staff Position 157-3, Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active, (“FSP 157-3”). FSP 157-3 clarifies the
application of SFAS No. 157 in a market that is not active, and addresses
application issues such as the use of internal assumptions when relevant
observable data does not exist, the use of observable market information when
the market is not active, and the use of market quotes when assessing the
relevance of observable and unobservable data. FSP 157-3 is effective for all
periods presented in accordance with SFAS No. 157. The adoption of FSP 157-3 did
not have a significant impact on our consolidated financial statements or the
fair values of our financial assets and liabilities.
In
December 2008, the FASB issued Financial Staff Position (“FSP”) Financial
Accounting Standard No. 140-4 and FASB Interpretation 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities (“FSP FAS 140-4” and “FIN 46(R)-8”). The document
increases disclosure requirements for public companies and is effective for
reporting periods (interim and annual) that end after December 15, 2008. FSP FAS
140-4 and FIN 46(R)-8 became effective for us on December 31, 2008. The adoption
of FSP FAS 140-4 and FIN 46(R)-8 did not have a significant impact on our
consolidated financial statements.
In April
2009, the FASB issued FSP 107-1 and Accounting Principles Board Opinion
(APB) 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
(ASC 820).
FSP 107-1 amends SFAS 107,
Disclosures about Fair Value
Instruments
and APB 28,
Interim Financial Reporting
(ASC 820), to require disclosures about fair value of financial instruments
during interim reporting periods. The Company will adopt the provisions of
FSP 107-1 and APB 28-1 during the quarter ended September 30,
2009.
In May
2009, the FASB issued SFAS 165, which establishes general standards of
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued.
SFAS 165 also requires the disclosure of the date through which subsequent
events have been evaluated and the basis for that date. The Company adopted the
provisions of SFAS 165 during the quarter ended June 30,
2009.
In June
2009, the Financial Accounting Standards Board (“FASB”) issued ASC Statement No.
105, the FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (“ASC
105”). ASC 105 will become the single source authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants,
Emerging Issues Task Force, and related accounting literature. ASC
105 reorganized the thousands of GAAP pronouncements into roughly 90 accounting
topics and displays them using a consistent structure. Also included
is relevant SEC guidance organized using the same topical structure in separate
sections. The Company adopted ASC 105 for the financial statements
ended September 30, 2009. The adoption of ASC 105 did not have an
impact on the Company’s financial position or results of
operations.
PROVISION
HOLDING, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
NOTE
2 INVENTORY
Inventory
consists of the following:
|
|
|
September
30, 2009
|
|
|
|
|
|
Raw
materials
|
|
$
|
122,200
|
|
Work
in process
|
|
|
100,824
|
|
Finished
goods
|
|
|
3,189
|
|
|
|
|
|
|
Total
|
|
$
|
226,213
|
NOTE
3 CONVERTIBLE DEBT
In July
of 2009, the Company issued $50,000 of convertible debt. The note is convertible
at the option of the holder at a conversion price of $0.10 per share. The note
pays interest at a rate of 10% per annum and is due in July 2010. Under EITF
98-5 and 00-27 the intrinsic value of the beneficial conversion feature was
recorded as a discount to the notes. This discount of $35,000 will be amortized
and charged to interest expense over the term of the note using the effective
interest rate method.
During
the three months ended September 30, 2009, the Company determined and recognized
the fair value of the embedded beneficial conversion feature of $35,000 as
additional paid-in capital as the convertible notes were issued with an
intrinsic value conversion feature.
The
Company has charged the beneficial conversion feature to additional paid-in
capital. In addition, the Company allocated the proceeds of issuance between the
convertible debt and the detachable warrants based on their relative fair
values. For the three months ended September 30, 2009 interest
expense of $503,669 has been accreted increasing the carrying value of the
convertible notes to $1,660,334 as of September 30, 2009. The fair value of the
warrants was estimated using the Black-Scholes option pricing model with an
expected life ranging from 24 to 36 months, a risk free interest rate ranging
from .94% to 3.14%, a dividend yield of 0%, and an expected volatility of
100%.
PROVISION
HOLDING, INC.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
Convertible
debt consists of the following:
|
|
|
September
30, 2009
|
|
|
|
|
|
|
|
Convertible
notes payable, annual interest rate of 10%, due dates range from May 2010
to December 2010 convertible into common stock at a rate of $0.10 to $1.50
per share.
|
|
$
|
2,245,000
|
|
|
|
|
|
|
|
|
Convertible
note payable, annual interest rate of 10%, convertible into common stock
at a rate of $1 per share. Note matured on March 8, 2009 and is
now in default and due upon demand.
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
debt discount
|
|
|
(1,334,646
|
)
|
|
|
|
|
|
|
|
|
|
|
1,660,354
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
(1,605,687
|
)
|
|
|
|
|
|
|
|
Convertible
debt, net of current portion and debt discount
|
|
$
|
54,667
|
|
Future
note maturities of convertible debt for the next twelve months and beyond are
$2,925,000 and $70,000, respectively.
NOTE
4 NOTES PAYABLE
During
the three months ended September 30, 2009, $7,000 of debt was
issued. The note payable is due upon demand and does not bear
interest. In connection with the funding of this note, the note
holder is due to receive 40,000 shares of the Company’s common stock within 30
days of receipt of the borrowed funds. If for any reason, the
principal sum is not paid in full within 90 days of the date thereof, or if the
Stock above is not issued to the note holder within 30 days, the Note shall
accrue interest at a rate of 7% APR, or portion thereof, until all amounts are
paid in full ("Default"). This interest shall accrue from the date above. In the
event a Default occurs, the stock shall still be issuable to the note holder,
and the entire remaining principal sum and all interest accrued shall become
immediately due.
NOTE
5 EQUITY
Common
Stock
During
the three months ended September 30, 2009, the Company issued 1,172,272 shares
of its common stock to its various consultants for services rendered and term
service agreements. The underlying shares had a fair market value of
$222,732 on the date of issuance. In accordance with the terms of the
agreements and the length of services to be provided, the Company has included
$189,794 of stock compensation expense in the statement of operations for the
three months ended September 30, 2009 and recorded the balance of $32,938 as
prepaid compensation.
NOTE 6
SUBSEQUENT EVENTS
During
October through November, 2009, the Company received $75,000 proceeds from the
issuance of convertible notes payable. The convertible notes bear
interest at 10%, are due fifteen months from the date of issuance and have a
conversion price of $0.50. In connection with the convertible notes,
the Company issued 150,000 warrants to the note holders with an exercise price
of $0.50.
Promissory
Notes
During
November, 2009, the Company received $30,000 proceeds from the issuance of
promissory notes payable.
In
connection with the issuance of the promissory notes, the Company will issue
500,000 shares of common stock to the holders of these notes as additional
consideration for prior financial advisory services, consulting services, and
introductory services provided to the Company.
The promissory notes bear
interest at 10% and mature in April 2010. The promissory notes
are secured by two of the Company’s 3DEO kiosks. In connection with
the issuance of the promissory notes, the Company will issue 500,000 shares of
common stock to the holders of these notes.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements regarding our
business, financial condition, results of operations and prospects. Words such
as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates” and similar expressions or variations of such words are intended to
identify forward-looking statements, but are not deemed to represent an
all-inclusive means of identifying forward-looking statements as denoted in this
Quarterly Report on Form 10-Q. Additionally, statements concerning future
matters are forward-looking statements.
Although
forward-looking statements in this Quarterly Report on Form 10-Q reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Such forward-looking statements
are subject to a number of risks, assumptions and uncertainties that could cause
the Company's actual results to differ materially from those projected in such
forward-looking statements. These risks, assumptions and uncertainties include:
the ability to develop customers and generate revenues; the ability to compete
effectively in a rapidly evolving marketplace; the impact of technological
change; our ability to protect our intellectual property in the United States
and other countries; our ability to raise capital to implement our business
plan; and other risks referenced from time to time in the Company's filings with
the Securities and Exchange Commission.
We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-K, except as required by law. Readers are urged to
carefully review and consider the various disclosures made throughout the
entirety of this Annual Report, which are designed to advise interested parties
of the risks and factors that may affect our business, financial condition,
results of operations and prospects.
Business
History and Overview
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.
The
Company is 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.
We are
also developing and marketing several new point-of-purchase, and other devices,
tailored to specific industries that are currently in Pilot Programs with major
international companies or readying to begin shortly; including the medical,
entertainment, government and home markets. 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.
One of
our new products is known as the “HL40 Diamond”, an extraordinary 3D holographic
video display system, to the retailing and advertising industries is smaller and
lighter than its predecessor, the HL40C. Used to promote all
type of products and services, the HL40D is a powerful tool to break through the
clutter of traditional in store advertising and merchandising. Our
other powerful 3D products can be used for a wide variety of interactive
applications including order-taking and information retrieval.
Business
Development
Launching
our first products into grocery stores, we have developed a new patent pending
application. Known as the “3DEO Rewards Center” or “3DEO”, this ProVision
device, also described as a kiosk or terminal, projects 3D video advertisements,
promotions, and public service announcements; and allows consumers to print
coupons as well as receive non-cash awards like sweepstakes. The 3DEO Rewards
Center provides consumer product good (“CPG”) companies, along with other
brands, marketers and advertisers with a new way of promoting their
products at the point of purchase, where consumers are making seventy percent of
their buying decisions.
We tested
our concept in Fred Meyer Stores, a division of The Kroger, Co., installing 3DEO
Centers 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 manufacturers’ will
advertise through digital coupons that customers will receive from Provision’s
3DEO Media Centers.
In August
2009, the Company announced an extremely successful market test with Unisys
Japan, and its Japanese distribution partner. As reported by Unisys,
Provision’s 3DEO program resulted in “uncountable eye-catches “from various
industries as the next generation of 3D digital signage.” Earlier in
the year, Provision was named as one of the Top 10 companies at Infocomm 2009 as
a significant technology trend of the year. Provision was also
honored by digital media giant, Scala, for the “most innovative installation” in
2008.
During
2009, Provision announced the addition of former Apple CEO and current AT&T
Director, Gil Amelio, to their Advisory Board. Additionally, Digital
Media Industry executive, Lyle Bunn, was also named to Provision’s Advisory
Board. Both of these additions have given the Company
significant additional credibility in business, technology, and the digital
media market.
We made
two key announcements introducing Provision’s strategic alliances and
partnerships with IBM, Microsoft, and Intel. As an Intel Capital
portfolio company, Provision’s CEO, Curt Thornton, was invited to speak at the
CEO forum held both in 2008 and 2009, sharing the Company’s 3D holographic
product line, market launch, and company strategy to over 200 global CEO’s in
attendance.
We plan
to build, own, and operate networks of 3DEO Rewards Centers. In March
2008 we signed three-year agreements with several independent Hispanic grocery
store chains to install 3DEO Reward Centers in 47 locations in southern
California. In September 2008, we signed an agreement with the Long
Island Gasoline Retailers Association (“LIGRA”) to install its patented 3D
holographic displays in up to 800 member stores throughout New York. Provision’s
displays will be located inside the independent convenience stores of major
franchise gasoline retailers including Shell, ExxonMobil, Citgo, Sunoco, BP,
Amoco and Gulf. As of September 30, 2009 the Company has announced a
total of 1086 retail locations with signed contracts, with additional retail
locations pending announcement.
We signed
a five-year agreement with ADCENTRICITY, Inc. to sell advertising on our digital
signage network. We also signed a letter of intent with LocalAdLink
to support our local and regional advertising sales.
We will
require significant additional funds to complete our business development. We
cannot be certain that funding will be available on acceptable terms, or at all.
To the extent that we raise additional funds by issuing equity securities, our
stockholders may experience significant dilution. Any debt financing, if
available, may involve restrictive covenants that impact our ability to conduct
our business. If we are unable to raise additional capital on acceptable terms,
or at all, we may have to significantly delay, scale back or discontinue the
development and/or commercialization of one or more of our product candidates,
restrict our operations or obtain funds by entering into agreements on
unattractive terms.
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.
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 three
product lines. We expect to file additional patent applications on a
regular basis in the future.
During
2009 the Company has announced several new patents issued including the U.S. and
China. Provision also filed six new patents in the European Union,
further protecting its intellectual property globally.
Provision
announced and demonstrated its first and second generation interactive,
gesture-recognition based technologies integrated with its 3D holographic
displays at the Intel Developer Forum and the National Retail Federation
Expo. The significance of this gesture recognition interactive
technology allows consumers and users of the 3D displays to “touch” and
manipulate the holographic video images in real-time, therefore providing an
immersive, engaging experience with an immediate call-to-action for the
consumer, and benefiting the retailer and advertiser. In September
2009 the Company announced and demonstrated its latest development program with
the University of Tokyo to bring in “feel” or “touchability” to Provision’s 3D
holographic video images.
The
Company introduced its newest product to the marketplace earlier in the
year. Called the HL17 Micro Diamond, replacing the current HL17T, the
Micro Diamond is half the size of the traditional HL17T weighs only 18
pounds.
While not remaining complacent with its
current technology platform being launched into the Digital Out-Of-Home
advertising markets, the Company seized the opportunity to begin the development
of a 3D Consumer Product. The new consumer product will be the first
of its kind and will exponentially expand the reach of Provision’s cutting edge
technology. The “out-of-the-box, plug-and-play” 3D display will
ultimately be targeted as a high volume product for the home game
market. The 3D display will be designed to be completely compatible
with the most popular game consoles on the market, and priced
accordingly. The new 3D
consumer product will also ultimately
benefit Provision’s market-leading, retail partners. The Company
plans on applying its successful consumer development solutions to its DOOH
products, providing partners with products that are lower cost, lighter weight,
and have futuristic industrial design
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.
At
present, our 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 three 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.
Results
of Operation – Three Months Ended September 30, 2009 as Compared to the Three
Months Ended September 30, 2008
|
Select
Financial Information
|
|
|
|
|
|
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
Total
Assets
|
|
$
|
1,049,465
|
|
|
$
|
1,416,653
|
|
|
Total
Liabilities
|
|
$
|
3,905,739
|
|
|
$
|
2,063,272
|
|
|
Total
Stockholders’ Deficit
|
|
$
|
2,856,274
|
|
|
$
|
646,619
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
54,419
|
|
|
$
|
266,327
|
|
|
Cost
of Revenues
|
|
|
22,047
|
|
|
|
129,323
|
|
|
Gross
Profit
|
|
|
32,372
|
|
|
|
137,004
|
|
|
Expenses
|
|
|
520,292
|
|
|
|
474,272
|
|
|
Loss
from Operations
|
|
|
(487,920
|
)
|
|
|
(337,268
|
)
|
|
Other
Income (Expense)
|
|
|
(604,350
|
)
|
|
|
(173,887
|
)
|
|
Net
Loss
|
|
$
|
(1,092,270
|
)
|
|
$
|
(511,155
|
)
|
|
Net
Loss per Common Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
Revenue
and Cost of Revenue
Revenues
for the three months ended September 30, 2009 decreased 80% to $54,419 from
$266,327 for the three months ended September 30, 2008. Included in
revenues for the three months ended September 30, 2009 is $52,500 from the sale
of our product coming from international distributors and the beginning shipment
of our Studio One purchase agreement as well as $1,389 in advertising revenues.
These international product sales came in from countries including Japan and
Europe. The Company has announced additional sales to its Japanese
distributor supporting the test of the Company’s products by Unisys, as well as
recent shipments to the U.K. to its distributor who is working with
Samsung. Advertising sales are expected to increase as the Company
continues its roll out of its 3D Reward Center in the large top demographic
markets of Los Angeles (#2) and New York (#1).We have entered into several
agreements with media buying agencies and ad agencies to assist in the selling
of 3D holographic ads and coupon promotions; expecting to continue the growth of
ad sales on a quarter by quarter basis.
Our cost
of revenues were $22,047 for the three months ended September 30, 2009 as
compared to $129,323 for the three months ended September 30,
2008. This decrease of $107,276 or 83% is a direct result of our
decreased revenues as well as the increase in advertising revenue which carries
no cost of revenue.
We had a
gross profit percentage of 59% for the three months ended September 30, 2009
compared to a gross profit percentage of 51% for the three months ended
September 30, 2008. The increase in gross margin percentage was a
result of a change in our sales mixture to higher margin items, increase in some
sales prices to certain regional, retail customers, along with our additional
advertising revenues. As discussed above, we expect advertising
revenues to increase in the coming quarters as the Company begins to roll out
its 3D Reward Center in the large top demographic markets of Los Angeles (#2)
and New York (#1).
Expenses
General
and administrative expenses for the three months ended September 30, 2009 were
$473,712 as compared to $440,301 for the three months ended September 30,
2008.
During
the three months ended September 30, 2009 our marketing expense decreased
$43,488 to $2,578 for the three months ended September 30, 2009 from $46,066
during the three months ended September 30, 2008. The decrease in our
marketing expenses was due to our decision to not reorder approximately $60,000
of marketing materials that were ordered and used during the year ended June 30,
2008. Our accounting fees decreased $82,055 to $23,600 during the
three months ended September 30, 2009 from $105,655 during the three months
ended September 30, 2008. This decrease in accounting fees is
directly related to our financial statement audit for the year ended June 30,
2008 as well as the requirement for quarterly reviewed financial statements to
fulfill our filing requirements with the Securities and Exchange Commission.
These decreases in expenses were partially offset by an increase of $153,481 in
non-cash compensation to $189,794 during the three months ended September 30,
2009 from $36,313 during the three months ended September 30,
2008. Non-cash compensation relates to the value of common stock,
warrants and options issued in exchange for services rendered. While
we cannot guarantee it, we do not expect our non-cash compensation to continue
this level of increase in the near future. Our consulting expenses increased
$25,625 to $35,625 during the three months ended September 30, 2009 from $10,000
during the three months ended September 30, 2008. Additionally, our
salaries and wages increased $20,018 to $113,300 during the three months ended
September 30, 2009 from $93,282 during the three months ended September 30,
2008.
During
the three months ended September 30, 2009 we recorded $46,580
of research and development expenses as compared to $33,971 during
the three months ended September 30, 2008. Research and development
expenses relate to the salary paid to two key employees who conduct ongoing
technical engineering tasks for product improvements, cost reductions, new
product development, and the like.
Other
Income (Expense)
Interest
expense increased 254% to $604,350 during the three months ended September 30,
2009 from $170,887 during the three months ended September 30,
2008. The increase is directly related to the increase in the
beneficial conversion feature interest expense related to the issuance of new
debt and the discount the note holder experiences.
During
the three months ended September 30, 2008 we recorded $3,000 unrealized loss of
securities as we revalued the carrying value of our investment in corporate
stock held.
Net
Loss
As a
result of the aforementioned, our net loss increased 114% or $581,115, to
$1,092,270 during the three months ended September 30, 2009 from $511,155 during
the three months ended September 30, 2008.
Financial
Condition, Liquidity and Capital Resources
Management
remains focused on controlling cash expenses. We have limited cash resources and
plan our expenses accordingly.
We had
cash of $-0- at September 30, 2009 compared to cash of $19,339 at June 30,
2009. Our working capital deficit increased to 3,474,514 at September
30, 2009 from a deficit of $2,543,076 at June 30, 2009. The reason for the
increase in the working capital deficit was the increase in current portion of
convertible debt of approximately $710,000.
During
the three months ended September 30, 2009, we used $76,339 of cash for operating
activities versus $304,680 during the three months ended September 30,
2008. The primary differences were the stock issued for services
during the three months ended September 30, 2009 in the amount of $187,794 along
with the amortization of the debt discount in the amount of $503,669 and the
increase in accounts payable and accrued expenses in the amount of
$139,562. These amounts were partially offset by the increase in the
net loss of $581,115.
Cash used
in investing activities during the three months ended September 30, 2009 and
2008 was $-0- and $43,078, respectively. During the three months
ended September 30, 2008 we used $39,772 to purchase equipment and $3,306 to
purchase patents.
Cash
provided by financing activities during the three months ended September 30,
2009 was $57,000 as a result of the proceeds from notes payable net of
fees. Cash provided by financing activities during the three months
ended September 30, 2008 was $313,450 as a result of the proceeds from notes
payable, net of fees.
We are
subject to the risks arising from adverse changes in domestic and global
economic conditions. Uncertainty about future economic conditions makes it
difficult for us to forecast operating results and to make decisions about
future investments. For example, the direction and relative strength of the
global economy has recently been increasingly uncertain due to softness in the
residential real estate and mortgage markets, volatility in fuel and other
energy costs, difficulties in the financial services sector and credit markets,
continuing geopolitical uncertainties and other macroeconomic factors affecting
spending behavior. If economic growth in the United States continues to be
slowed, or if other adverse general economic changes occur or continue, many
potential customers may delay or reduce technology purchases
and advertising and marketing spending. This could result in
reductions in sales of our products and a delay in launching our advertising
network.
Given our
plans and expectation that we will need additional capital, we will need to
issue additional shares of capital stock or securities convertible or
exercisable for shares of capital stock, including preferred stock, options or
warrants. We have no committed source of financing. Wherever possible, our Board
of Directors will attempt to use non-cash consideration to satisfy obligations.
In many instances, we believe that the non-cash consideration will consist of
restricted shares of our common stock. These actions will result in dilution of
the ownership interests of existing shareholders.
No cash
dividends have been paid on our common stock. We expect that any income received
from operations will be devoted to our future operations and growth. We do not
expect to pay cash dividends in the near future. Payment of dividends would
depend upon our profitability at the time, cash available for those dividends,
and other factors as our board of directors may consider relevant. If we do not
pay dividends, our common stock may be less valuable because a return on an
investor's investment will only occur if our stock price
appreciates.
Off
Balance Sheet Arrangements
We do not
engage in any off balance sheet arrangements that are reasonably likely to have
a current or future effect on our financial condition, revenues, results of
operations, and liquidity or capital expenditures.
Critical Accounting
Policies
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.
Revenue Recognition —
We
recognize revenue when persuasive evidence of an arrangement exists, title
transfer has occurred, the price is fixed or readily determinable, and
collectability is probable. We recognize revenue in accordance with Staff
Accounting Bulletin No. 104, "Revenue Recognition." Sales are recorded net
of sales returns and discounts, which are estimated at the time of shipment
based upon historical data.
Impairment of Long-Lived Assets
—
We review the recoverability of the carrying value of long-lived assets
using the methodology prescribed in SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets" whenever events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. Upon such an occurrence, recoverability of these assets is
determined by comparing the forecasted undiscounted net cash flows to which the
assets relate, to the carrying amount. If the asset is determined to be unable
to recover its carrying value, it is written down to fair value. Fair value is
determined based on discounted cash flows, appraised values or other information
available in the market, depending on the nature of the assets. Methodologies
for determining fair value are inherently based on estimates that may change,
such as the useful lives of assets and our cash flow forecasts associated with
certain assets. A change in these estimates may result in impairment charges,
which would impact our operating results.
Going
Concern
These
financial statements are presented on the basis that the Company is a going
concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The Company has incurred a loss of approximately $1,100,000 in
the current period and has negative working capital of approximately $3,500,000.
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.
Accounting
for Stock Option Based Compensation
Effective
July 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment: An
Amendment of FASB Statements No. 123 and 95" using the modified prospective
method. Under this method, compensation cost is recognized on or after the
effective date for the portion of outstanding awards, for which the requisite
service has not yet been rendered, based on the grant date fair value of those
awards. Prior to July 1, 2006, the Company accounted for employee stock options
using the intrinsic value method in accordance with Accounting Principles Board
(APB) Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees,"
and adopted the disclosure only alternative of SFAS No. 123. For stock-based
awards issued on or after July 1, 2006, the Company recognizes the compensation
cost on a straight-line basis over the requisite service period for the entire
award. Measurement and attribution of compensation cost for awards that are
unvested as of the effective date of SFAS No. 123(R) are based on the same
estimate of the grant-date or modification-date fair value and the same
attribution method used under SFAS No. 123.
On
November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position No. FAS 123(R)-3 "Transition Election Related to Accounting for
Tax Effects of Share-Based Payment Awards". The Company has elected to adopt the
alternative transition method provided in the FASB Staff Position for
calculating the tax effects of stock-based compensation pursuant to SFAS No.
123(R). The alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in capital pool (APIC
pool) related to the tax effects of employee stock-based compensation, and to
determine the subsequent impact on the APIC pool and Consolidated Statements of
Cash Flows of the tax effects of employee stock-based compensation awards that
are outstanding upon adoption of SFAS No. 123(R). As the Company is currently in
a net operating loss position and has placed valuation allowances on its net
deferred tax assets, there is no net impact on the Company's APIC pool related
to stock-based compensation for the three months ended September 30,
2009.
Recent
Accounting Pronouncements
In the
first quarter of fiscal 2009, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements, (“SFAS No. 157”) for all
financial assets and financial liabilities and for all non-financial assets and
non-financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value, and enhances fair value
measurement disclosure. The adoption of SFAS No. 157 did not have a significant
impact on our consolidated financial statements, and the resulting fair values
calculated under SFAS No. 157 after adoption were not significantly different
than the fair values that would have been calculated under previous
guidance.
In
February 2007, the FASB issued SFAS 159,
The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement
No. 115 (ASC 825)
. SFAS 159 permits companies to measure
certain financial instruments and other items at fair value. We have not elected
the fair value option applicable under SFAS 159.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements presented in conformity
with generally accepted accounting principles in the United States of America.
SFAS No. 162 will be effective 60 days following the SEC's approval of
the Public Company Accounting Oversight Board (PCAOB) amendments to AU
Section 411, "The Meaning of, Present fairly in conformity with generally
accepted accounting principles". The Company does not believe the implementation
of SFAS No. 162 will have a material impact on its consolidated financial
statements.
In
October 2008, the Financial Accounting Standards Board (“FASB”) issued Financial
Staff Position 157-3, Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active, (“FSP 157-3”). FSP 157-3 clarifies the
application of SFAS No. 157 in a market that is not active, and addresses
application issues such as the use of internal assumptions when relevant
observable data does not exist, the use of observable market information when
the market is not active, and the use of market quotes when assessing the
relevance of observable and unobservable data. FSP 157-3 is effective for all
periods presented in accordance with SFAS No. 157. The adoption of FSP 157-3 did
not have a significant impact on our consolidated financial statements or the
fair values of our financial assets and liabilities.
In
December 2008, the FASB issued Financial Staff Position (“FSP”) Financial
Accounting Standard No. 140-4 and FASB Interpretation 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities (“FSP FAS 140-4” and “FIN 46(R)-8”). The document
increases disclosure requirements for public companies and is effective for
reporting periods (interim and annual) that end after December 15, 2008. FSP FAS
140-4 and FIN 46(R)-8 became effective for us on December 31, 2008. The adoption
of FSP FAS 140-4 and FIN 46(R)-8 did not have a significant impact on our
consolidated financial statements.
In April
2009, the FASB issued FSP 107-1 and Accounting Principles Board Opinion
(APB) 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
(ASC 820).
FSP 107-1 amends SFAS 107,
Disclosures about Fair Value
Instruments
and APB 28,
Interim Financial Reporting
(ASC 820), to require disclosures about fair value of financial instruments
during interim reporting periods. The Company will adopt the provisions of
FSP 107-1 and APB 28-1 during the quarter ended September 30,
2009.
In May
2009, the FASB issued SFAS 165, which establishes general standards of
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued.
SFAS 165 also requires the disclosure of the date through which subsequent
events have been evaluated and the basis for that date. The Company adopted the
provisions of SFAS 165 during the quarter ended June 30,
2009.
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ITEM
3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
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N/A
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ITEM
4T.
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CONTROLS
AND PROCEDURES.
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Evaluation of Disclosure Controls
and Procedures.
Internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) refers to the process designed by, or
under the supervision of, our principal executive officer and principal
financial officer, and effected by our board of directors, management and other
personnel, 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. Management is responsible for establishing and maintaining
adequate internal control over financial reporting.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate,
this risk.
Based
upon this evaluation, our CEO has concluded that, without third-party
specialists, our current disclosure controls and procedures are not effective to
provide reasonable assurance that material information required to be included
in our periodic SEC reports is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and accumulated
and communicated to our senior management, including our CEO, to allow timely
decisions regarding required disclosures. Management’s report is not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only management’s report in this Annual
Report.
Changes in Internal Control Over
Financial Reporting.
During the most recent quarter ended
September 30, 2009, there has been no change in our internal control
over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART
II
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ITEM
1.
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LEGAL
PROCEEDINGS.
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There are
no material legal proceedings, to our knowledge, pending against us or being
pursued by us.
|
ITEM
2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
|
The below
shares of common stock were sold or issued to accredited investors in the first
nine months of 2009 pursuant to an exemption from registration under Section
4(2) of the Securities Act and Regulation D promulgated pursuant thereto. No
general solicitation or advertising was used to market the
securities. All funds raised were used to fund our
operations.
In July
of 2009, the Company issued $50,000 of convertible debt. The note is convertible
at the option of the holder at a conversion price of $0.10 per share. The note
pays interest at a rate of 10% per annum and is due in July 2010.
During
the three months ended September 30, 2009, $7,000 of debt was
issued. The note payable is due upon demand and does not bear
interest. In connection with the funding of this note, the note
holder is due to receive 40,000 shares of the Company's common stock within 30
days of receipt of the borrowed funds.
During
the three months ended September 30, 2009, the Company issued 1,172,272 shares
of its common stock to its various consultants for services rendered and term
service agreements. The underlying shares had a fair market value of
$222,732 on the date of issuance.
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ITEM
3.
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DEFAULTS
UPON SENIOR SECURITIES.
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None
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
None
|
ITEM
5.
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OTHER
INFORMATION.
|
None
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Exhibit
Number
|
|
Description
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|
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31.1
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Certification
by Chief Executive Officer and Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act.
|
|
|
|
|
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32.1
|
|
Certification
by Chief Executive Officer and Chief Financial Officer, required by Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of
Chapter 63 of Title 18 of the United States
Code.
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
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PROVISION
HOLDING, INC.
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|
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By:
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/s/ Curt
Thornton
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|
|
|
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Curt
Thornton
|
|
|
|
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Chief
Executive Officer (Principal Executive Officer) and Chief Financial
Officer
|
|
|
|
|
(Principal
Financial Officer and Accounting Officer) and Director
|
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20