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 December 31, 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.
      Employerincorporation
      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 February 19, 2010, the issuer had 31,352,955 outstanding shares of
common stock.










TABLE
OF CONTENTS








PART
I


PageItem
      1.
            Financial
      Statements
            
            
            3Condensed
      Consolidated Balance Sheets as of December 31, 2009 (unaudited) and June
      30, 2009
            
            
            3Condensed
      Consolidated Statements of Operations for the three and six months ended
      December 31, 2009 and 2008 (Unaudited)
            
            
            4Condensed
      Consolidated Statements of Cash Flows for the six months ended December
      31, 2009 and 2008 (Unaudited).
            
            
            5Notes
      to Condensed Consolidated Financial Statements December 31, 2009
      (Unaudited)
            
            
            6Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            
            
            11Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            
            
            19Item
      4T.
            Controls
      and Procedures
            
            
            19PART
      IIItem
      1.
            Legal
      Proceedings
            
            
            19Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            
            19Item
      3.
            Defaults
      Upon Senior Securities
            
            
            19Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            
            
            19Item
      5.
            Other
      Information
            
            
            19Item
      6.
            Exhibits
            
            
            19SIGNATURES
            
            
            20







2




PROVISION
HOLDING, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS




December
      31, 2009 (Unaudited)
            
            
            June
      30, 2009ASSETSCURRENT
      ASSETSCash
            
            $
            79,918
            
            
            $
            19,339Inventory
            
            
            264,127
            
            
            
            222,712Prepaid
      expenses
            
            
            250,538
            
            
            
            106,875Investments
            
            
            3,000
            
            
            
            3,000TOTAL
      CURRENT ASSETS
            
            
            597,583
            
            
            
            351,926EQUIPMENT, net of
      accumulated depreciation
            
            
            337,045
            
            
            
            472,715PREPAID
      FINANCING COSTS
            
            
            69,400
            
            
            
            93,781INTANGIBLES, net of
      accumulated amortization
            
            
            173,401
            
            
            
            174,649TOTAL
      ASSETS
            
            $
            1,177,429
            
            
            $
            1,093,071LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
            
            $
            780,840
            
            
            $
            599,835Accrued
      interest
            
            
            730,078
            
            
            
            571,417Unearned  revenue
            
            
            101,948
            
            
            
            71,557Current
      portion of convertible debt, net of debt discount
            
            
            1,978,393
            
            
            
            921,881Notes
      payable, current portion
            
            
            175,000
            
            
            
            138,000Contingent
      liability
            
            
            592,312
            
            
            
            592,312TOTAL
      CURRENT LIABILITIES
            
            
            4,358,571
            
            
            
            2,895,002CONVERTIBLE DEBT,net of
      current portion and debt discount
            
            
            78,576
            
            
            
            219,805TOTAL
      LIABILITIES
            
            
            4,437,147
            
            
            
            3,114,807STOCKHOLDERS’
      DEFICITPreferred
      stock, par value $0.001 per shareAuthorized
      – 4,000,000 sharesIssued
      and outstanding – 0 shares
            
            
            -
            
            
            
            -Common
      stock, par value $0.001 per shareAuthorized
      – 100,000,000 sharesIssued
      and outstanding – 30,877,644  and 26,465,372,
      respectively
            
            
            30,877
            
            
            
            26,465Additional
      paid-in capital
            
            
            13,076,838
            
            
            
            12,198,454Less  receivable
      for stock
            
            
            (50,000
            )
            
            
            (50,000
            )Accumulated
      deficit
            
            
            (16,317,433
            )
            
            
            (14,196,655
            )TOTAL
      STOCKHOLDERS’ DEFICIT
            
            
            (3,259,718
            )
            
            
            (2,021,736
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            1,177,429
            
            
            $
            1,093,071








The
accompanying notes are an integral part of the financial
statements


3





PROVISION
HOLDING, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)







For
      the Three Months Ended December 31,
            
            
            For
      the Six Months Ended December 31,2009
            
            
            2008
            
            
            2009
            
            
            2008REVENUES
            
            $
            80,995
            
            
            $
            219,320
            
            
            $
            135,459
            
            
            $
            342,117COST
      OF REVENUES
            
            
            35,436
            
            
            
            107,293
            
            
            
            57,483
            
            
            
            164,782GROSS
      PROFIT
            
            
            45,559
            
            
            
            112,027
            
            
            
            77,976
            
            
            
            177,335EXPENSESGeneral
      and administrative
            
            
            579,594
            
            
            
            662,994
            
            
            
            1,053,306
            
            
            
            1,167,727Research
      and development
            
            
            38,381
            
            
            
            41,376
            
            
            
            84,961
            
            
            
            82,847TOTAL
      EXPENSES
            
            
            617,975
            
            
            
            704,370
            
            
            
            1,138,267
            
            
            
            1,250,574(LOSS)
      FROM OPERATIONS
            
            
            (572,416
            )
            
            
            (592,343
            )
            
            
            (1,060,291
            )
            
            
            (1,073,239
            )OTHER
      INCOME (EXPENSE)Unrealized
      loss on securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,000
            )Gain
      on disposal of fixed asset
            
            
            -
            
            
            
            5,725
            
            
            
            -
            
            
            
            5,725Interest
      expense
            
            
            (456,137
            )
            
            
            (209,575
            )
            
            
            (1,060,487
            )
            
            
            (380,462
            )TOTAL
      OTHER INCOME (EXPENSE)
            
            
            (456,137
            )
            
            
            (203,850
            )
            
            
            (1,060,487
            )
            
            
            (377,737
            )(LOSS)
      BEFORE INCOME TAXES
            
            
            (1,028,553
            )
            
            
            (796,193
            )
            
            
            (2,120,778
            )
            
            
            (1,450,976
            )Income
      tax expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -NET
      (LOSS)
            
            $
            (1,028,553
            )
            
            $
            (796,193
            )
            
            
            (2,120,778
            )
            
            
            (1,450,976
            )NET
      (LOSS) PER COMMON SHAREBasic
      and diluted
            
            $
            (0.04
            )
            
            $
            (0.03
            )
            
            
            (0.08
            )
            
            
            (0.06
            )WEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDINGBasic
      and diluted
            
            
            28,734,789
            
            
            
            24,573,894
            
            
            
            28,128,057
            
            
            
            24,510,130







The
accompanying notes are an integral part of the financial
statements




4





PROVISION
HOLDING, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)








2009
            
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss)
            
            $
            (2,120,778
            )
            
            $
            (1,450,976
            )Adjustments
      to reconcile net (loss) to net cash(used)
      by operating activities:Non-cash
      compensation
            
            
            -
            
            
            
            36,313Stock
      issued for services
            
            
            545,149
            
            
            
            284,562Depreciation
      expense
            
            
            30,843
            
            
            
            61,296Amortization
            
            
            1,248
            
            
            
            1,248Gain
      on disposal of fixed asset
            
            
            -
            
            
            
            (5,725
            )Unrealized
      loss on securities
            
            
            -
            
            
            
            3,000Amortization
      of debt discount
            
            
            823,447
            
            
            
            217,970Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            -
            
            
            
            (600
            )Inventory
            
            
            63,412
            
            
            
            77,641Prepaid
      financing costs
            
            
            72,701
            
            
            
            50,558Accounts
      payable and accrued liabilities
            
            
            181,005
            
            
            
            28,015Accrued
      interest
            
            
            158,661
            
            
            
            98,639Unearned
      revenue
            
            
            30,391
            
            
            
            76,374NET
      CASH (USED) BY OPERATING ACTIVITIES
            
            
            (213,921
            )
            
            
            (521,685
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of equipment
            
            
            -
            
            
            
            (44,207
            )Patents
            
            
            -
            
            
            
            (3,306
            )NET
      CASH (USED) BY INVESTING ACTIVITES
            
            
            -
            
            
            
            (47,513
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from note payable, net of fees
            
            
            274,500
            
            
            
            396,750Prepayments
      of notes payable
            
            
            -
            
            
            
            -NET
      CASH PROVIDED BY FINANCING ACTIVITES
            
            
            274,500
            
            
            
            396,750NET
      INCREASE (DECREASE) IN CASHAND
      CASH EQUIVALENTS
            
            
            60,579
            
            
            
            (172,448
            )CASH
      AND CASH EQUIVALENTSAT
      THE BEGINNING OFTHE
      PERIOD
            
            
            19,339
            
            
            
            287,641CASH
      AND CASH EQUIVALENTSAT
      THE END OF THE PERIOD
            
            $
            79,918
            
            
            $
            115,193





SUPPLEMENTAL
      DISCLOSURE OFCASH
      FLOW INFORMATIONInterest
      paid
            
            $
            -
            
            
            $
            12,500Taxes
      paid
            
            $
            -
            
            
            $
            -







The
accompanying notes are an integral part of the financial statements


5




PROVISION
HOLDING, INC.
 CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED DECEMBER 31, 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
December 31, 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 February 22, 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 $2,100,000 in
the current period and has negative working capital of approximately $3,800,000.
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 December 31, 2009, the Company had debt instruments outstanding that can
potentially be converted into approximately 7,400,000shares of common
stock.





6





PROVISION
HOLDING, INC.


CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009


(UNAUDITED)









Fair
Value of Financial Instruments




In April
2009, the FASB issued new guidance that require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. The new guidance is effective for
interim and annual reporting periods ending after June 15, 2009. The fair
value of certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and other current liabilities
approximate their recorded carrying amounts because of their short-term
nature.




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




·
            Level
      1  inputs to the valuation methodology are quoted prices
      (unadjusted) for identical assets or liabilities in active
      markets.·
            Level
      2  inputs to the valuation methodology include quoted prices for
      similar assets and liabilities in active markets, and inputs that are
      observable for the assets or liability, either directly or indirectly, for
      substantially the full term of the financial
  instruments.·
            Level
      3  inputs to the valuation methodology are unobservable and
      significant to the fair value.  Carrying
      Value
                December
      31,
                2009
              
              
              Fair
      Value Measurements
                December
      31, 2009
                Using
      Fair Value HierarchyLevel 1
              
              
              Level 2
              
              
              Level 3Convertible
      notes
              
              $
              3,182,500
              
              
              $
              --
              
              
              $
              --
              
              
              $
              2,056,969








The
following table provides a summary of the changes in fair value of the Company’s
Promissory Notes, which are Level 3 liabilities as of December 31,
2009:




Balance
      at June 30, 2009
            
            $
            1,141,686Issuance
      of debt
            
            
            91,836Accretion
      of discount
            
            
            823,447Balance
      at December 31, 2009
            
            $
            2,056,969




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.







7


PROVISION
HOLDING, INC.
 CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009
 (UNAUDITED)






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 adopted the provisions of
FSP 107-1 and APB 28-1 during the quarter ended December 31,
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.





NOTE
2   INVENTORY





Inventory
consists of the following:





December
      31, 2009Raw
      materials
            
            $
            122,889Work
      in process
            
            
            141,238Finished
      goods
            
            
            -Total
            
            $
            264,127





8





PROVISION
HOLDING, INC.
 CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009
 (UNAUDITED)




NOTE
3  CONVERTIBLE DEBT





In July
of 2009, the Company issued $50,000 of convertible debt. The note is convertible
into common stock 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.





In
October of 2009, the Company issued $75,000 of convertible debt. The notes are
convertible into common stock at the option of the holder at a conversion price
of $0.50 per share and includes warrants to purchase 150,000 shares of common
stock at $0.50 per share. The notes pay interest at a rate of 10% per annum and
are due in January 2011.





In
November of 2009, the Company issued $12,500 of convertible debt. The note is
convertible into common stock at the option of the holder at a conversion price
of $0.50 per share and includes warrants to purchase 3,125 shares of common
stock at $0.50 per share. The note pays interest at a rate of 8% per annum and
is due in November 2011.





In
December of 2009, the Company issued $100,000 of convertible debt. The note is
convertible into common stock at the option of the holder at a conversion price
of $0.15 per share and includes warrants to purchase 500,000 shares of common
stock at $0.20 per share.  The note pays interest at a rate of 8% per
annum and is due in December 2011.





The
Company allocated the proceeds of issuances above between the convertible debt
and the detachable warrants and beneficial conversion feature based on their
relative fair values.  Accordingly, a debt discount totaling $145,664
was recorded to additional paid-in capital. For the six months ended December
31, 2009 interest expense of $823,447 has been accreted increasing the carrying
value of the convertible notes to $2,056,969 as of December 31, 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%.





Convertible
debt consists of the following:





December
      31, 2009Convertible
      notes payable, annual interest rate of 10%, due dates range from May 2010
      to December 2011; convertible into common stock at a rate of $0.10 to
      $1.50 per share.
            
            $
            2,432,500Convertible
      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.
            
            
            750,000Unamortized
      debt discount
            
            
            (1,125,531
            )2,056,969Less
      current portion
            
            
            (1,978,393
            )Convertible
      debt, net of current portion and debt discount
            
            $
            78,576





Future
note maturities of convertible debt for the next twelve months and beyond are
$3,095,000 and $87,500, respectively.







9





PROVISION
HOLDING, INC.


CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED DECEMBER 31, 2009


(UNAUDITED)








NOTE
4  NOTES PAYABLE





In
September of 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.





In
November of 2009, $30,000 of debt was issued in the form of three notes
payable.  The notes payable are due upon demand and bear interest at
10% per annum.  In connection with the funding of this note, the note
holders received 500,000 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 10% 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 six months ended December 31, 2009, the Company issued 4,412,272 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
$737,132 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
$545,149 of stock compensation expense in the statement of operations for the
six months ended December 31, 2009 and recorded the balance of $191,983 as
additional prepaid compensation.




NOTE 6 
SUBSEQUENT EVENTS





Subsequent
to December 31, 2009, the Company has issued 47,619 shares of common stock for
cash of $10,000 and approximately 442,000 shares of common stock for services
and debt.







10






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.





11





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 December 31, 2009 the Company has announced a
total of 1,086 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.







12






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 3Dconsumer 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.




13




Results
of Operation – Three Months Ended December 31, 2009 as Compared to the Three
Months Ended December 31, 2008





Select
      Financial Information2009
            
            
            2008Total
      Assets
            
            $
            1,177,429
            
            
            $
            1,176,919Total
      Liabilities
            
            $
            4,437,147
            
            
            $
            2,448,981Total
      Stockholders’ Deficit
            
            $
            (3,259,718
            )
            
            $
            (1,272,062
            )Revenues
            
            $
            80,995
            
            
            $
            219,320Cost
      of Revenues
            
            
            35,436
            
            
            
            107,293Gross
      Profit
            
            
            45,559
            
            
            
            112,027Expenses
            
            
            617,975
            
            
            
            704,370Loss
      from Operations
            
            
            (572,416
            )
            
            
            (592,343
            )Other
      Income (Expense)
            
            
            (456,137
            )
            
            
            (203,850
            )Net
      Loss
            
            $
            (1,028,553
            )
            
            $
            (796,193
            )Net
      Loss per Common Share
            
            $
            (0.04
            )
            
            $
            (0.03
            )





Revenue
and Cost of Revenue





Revenues
for the three months ended December 31, 2009 decreased 63% to $80,995 from
$219,320 for the three months ended December 31, 2008.  Our lack of
available cash resources to construct more units combined with the general
economic slowdown adversely impacted our revenues. Included in revenues for the
three months ended December 31, 2009 is $74,525 from the sale of our product
coming from international distributors and the beginning shipment of our Studio
One purchase agreement as well as $4,167 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 $35,436 for the three months ended December 31, 2009 as
compared to $107,293 for the three months ended December 31,
2008.  This decrease of $71,857 or 67% 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 56% for the three months ended December 31, 2009
compared to a gross profit percentage of 51% for the three months ended December
31, 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 December 31, 2009 were
$579,594 as compared to $662,994 for the three months ended December 31,
2008.





During
the three months ended December 31, 2009 our marketing expense decreased $67,796
to $1,688 for the three months ended December 31, 2009 from $69,484 during the
three months ended December 31, 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,
2009.  Our accounting fees decreased $47,739 to $85,141 during the
three months ended December 31, 2009 from $132,880 during the three months ended
December 31, 2008.  This decrease in accounting fees is directly
related to our financial statement audits for the two years ended June 30, 2008
being included in last year’s expenses. Additionally we experienced a decrease
of $36,770 in non-cash compensation to $284,105 during the three months ended
December 31, 2009 from $320,875 during the three months ended December 31,
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 expense in the near future. Our consulting expenses increased
$39,078 to $47,325 during the three months ended December 31, 2009 from $8,247
during the three months ended December 31, 2008.  Additionally, our
salaries and wages increased $21,173 to $93,611 during the three months ended
December 31, 2009 from $72,438 during the three months ended December 31,
2008.




14





During
the three months ended December 31, 2009 we recorded $38,381 of research and
development expenses as compared to $41,376 during the three months ended
December 31, 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 118% to $456,137 during the three months ended December 31,
2009 from $209,575 during the three months ended December 31,
2008.  The increase is directly related to the issuance of new debt
and the amortization of the related debt discount.





During
the three months ended December 31, 2008 we recorded $5,725 on the gain from the
disposal of a fixed asset.





Net
Loss





As a
result of the aforementioned, our net loss increased 29% or $232,360, to
$1,028,553 during the three months ended December 31, 2009 from $796,193 during
the three months ended December 31, 2008.





Results
of Operation – Six Months Ended December 31, 2009 as Compared to the Six Months
Ended December 31, 2008





Select
      Financial Information2009
            
            
            2008Revenues
            
            $
            135,459
            
            
            $
            342,117Cost
      of Revenues
            
            
            57,483
            
            
            
            164,782Gross
      Profit
            
            
            77,976
            
            
            
            177,335Expenses
            
            
            1,138,267
            
            
            
            1,250,574Loss
      from Operations
            
            
            (1,060,291
            )
            
            
            (1,073,239
            )Other
      Income (Expense)
            
            
            (1,060,487
            )
            
            
            (377,737
            )Net
      Loss
            
            $
            (2,120,778
            )
            
            $
            (1,450,976
            )Net
      Loss per Common Share
            
            $
            (0.08
            )
            
            $
            (0.06
            )





Revenue
and Cost of Revenue





Revenues
for the six months ended December 31, 2009 decreased 60% to $135,459 from
$342,117 for the six months ended December 31, 2008.  Our lack of
available cash resources to construct more units combined with the general
economic slowdown adversely impacted our revenues. Included in revenues for the
six months ended December 31, 2009 is $127,025 from the sale of our product
coming from international distributors and the beginning shipment of our Studio
One purchase agreement as well as $5,556 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 $57,483 for the six months ended December 31, 2009 as compared
to $164,782 for the six months ended December 31, 2008.  This decrease
of $107,299 or 65% 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 58% for the six months ended December 31, 2009
compared to a gross profit percentage of 52% for the six months ended December
31, 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).





15





Expenses





General
and administrative expenses for the six months ended December 31, 2009 were
$1,053,306 as compared to $1,167,727 for the six months ended December 31,
2008.





During
the six months ended December 31, 2009 our marketing expense decreased $91,050
to $4,266 for the six months ended December 31, 2009 from $95,316 during the six
months ended December 31, 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 $44,514 to $108,741 during the
six months ended December 31, 2009 from $153,255 during the six months ended
December 31, 2008.  This decrease in accounting fees is directly
related to our financial statement audit for the two years ended June 30, 2008
being included in last year’s expenses. These decreases in expenses were
partially offset by an increase of $224,274 in non-cash compensation to $545,149
during the six months ended December 31, 2009 from $320,875 during the six
months ended December 31, 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 $64,703 to $82,950 during the six months ended
December 31, 2009 from $18,247 during the six months ended December 31,
2008.  Additionally, our salaries and wages increased $41,191 to
$206,911 during the six months ended December 31, 2009 from $165,720 during the
six months ended December 31, 2008.





During
the six months ended December 31, 2009 we recorded $84,961 of research and
development expenses as compared to $82,847 during the six months ended December
31, 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 179% to $1,060,487 during the six months ended December 31,
2009 from $380,462 during the six months ended December 31, 2008.  The
increase is directly related to the issuance of new debt and the amortization of
the related debt discount.





During
the six months ended December 31, 2008 we recorded $5,725 on the gain from the
disposal of a fixed asset.





During
the six months ended December 31, 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 46% or $669,802 to
$2,120,778 during the six months ended December 31, 2009 from $1,450,976 during
the six months ended December 31, 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 $79,918 at December 31, 2009 compared to cash of $19,339 at June 30,
2009.  Our working capital deficit increased to $3,760,988 at December
31, 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 $800,000.





During
the six months ended December 31, 2009, we used $213,921 of cash for operating
activities versus $521,658 during the six months ended December 31,
2008.  The primary difference was the deferral of paying many of our
creditors and wages to conserve cash.





Cash used
in investing activities during the six months ended December 31, 2009 and 2008
was $-0- and $47,513, respectively.  During the six months ended
December 31, 2008 we used $44,207 to purchase equipment and $3,306 to purchase
patents.





Cash
provided by financing activities during the six months ended December 31, 2009
was $274,500 as a result of the proceeds from notes payable, net of
fees.  Cash provided by financing activities during the six months
ended December 31, 2008 was $396,750 as a result of the proceeds from notes
payable, net of fees.




16




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. The issuance of additional capital stock may dilute the ownership of
the current stockholders.





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 $2,100,000 in the current period and has
negative working capital of approximately $3,800,000. 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.




17





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 six months ended December 31,
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  adopted 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.








18







ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





N/A





ITEM
      4T.
            CONTROLS
      AND PROCEDURES.





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
December 31, 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





ITEM
      1.
            LEGAL
      PROCEEDINGS.





There are
no material legal p roceedings,
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
quarter ended December 31, 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:
 
 In October of
2009, the Company issued $75,000 of convertible debt. The notes are convertible
into common stock at the option of the holder at a conversion price of $0.50 per
share and includes warrants to purchase 150,000 shares of common stock at $0.50
per share. The notes pay interest at a rate of 10% per annum and are due in
January 2011.
 
 In November
of 2009, the Company issued $12,500 of convertible debt. The note is convertible
into common stock at the option of the holder at a conversion price of $0.50 per
share and includes warrants to purchase 3,125 shares of common stock at $0.50
per share. The note pays interest at a rate of 8% per annum and is due in
November 2011.
 
 In December
of 2009, the Company issued $100,000 of convertible debt. The note is
convertible into common stock at the option of the holder at a conversion price
of $0.15 per share and includes warrants to purchase 500,000 shares of common
stock at $0.20 per share.  The note pays interest at a rate of 8% per annum
and is due in December 2011.
 
 All funds
raised in these issuances were used to fund our operations. Purchases of Equity
Securities by the Issuer and Affiliated Purchasers.
  In November
of 2009, $30,000 of debt was issued in the form of three notes payable. 
The notes payable are due upon demand and bear interest at 10% per
annum.  In connection with the funding of this note, the note holders
received 500,000 shares of the Company’s common stock within 30 days of receipt
of the borrowed funds.


ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None





ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.





None





ITEM
      5.
            OTHER
      INFORMATION.





None





ITEM
      6.
            EXHIBITS.






Exhibit
      Number
            
            Description31.1
            
            Certification
      by Chief Executive Officer and Chief Financial Officer required by Rule
      13a-14(a) or Rule 15d-14(a) of the Exchange Act.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.







19





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.








PROVISION
      HOLDING, INC.February
      22, 2010
            By:
            /s/ Curt
      ThorntonCurt
      ThorntonChief
      Executive Officer (Principal Executive Officer) and Chief Financial
      Officer(Principal
      Financial Officer and Accounting Officer) and Director