Consorteum Holdings, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - CERTIFICATION - Consorteum Holdings, Inc.	consort_ex3202.txt
EX-31.2 - CERTIFICATION - Consorteum Holdings, Inc.	consort_ex3102.txt
EX-32.1 - CERTIFICATION - Consorteum Holdings, Inc.	consort_ex3201.txt
EX-31.1 - CERTIFICATION - Consorteum Holdings, Inc.	consort_ex3101.txt

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 333-140236

CONSORTEUM HOLDINGS, INC.
-----------------------------
(Exact Name of Company as Specified in its Charter)

Nevada
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

141 Adelaide Street West, Suite 550, Toronto. Ontario, M5H 3L5 Canada

---------------------------------------------------------------
(Address of Principal Executive Offices)

(866) 824-8854
--------------
(Company's Telephone Number)

Suite 202 - 2900 John Street, Markham, Ontario L3R 5G3 Canada
-----------------------------------------------------
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)

Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days. Yes [X] No [ ].

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
definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]
Accelerated filer [_]
Non-accelerated filer (Do not check if a smaller reporting company) [_]
Smaller reporting company [x]

Indicate by check mark whether the Company is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [ ] No [X].

As of May 20, 2010, the Company had 93,953,715 shares of common stock issued and
outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

TABLE OF CONTENTS

PAGE
----
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2010
AND JUNE 30, 2009. 3

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS FOR THE THREE AND NINE-MONTH PERIODS ENDED MARCH 31, 2010 AND
MARCH 31, 2009, AND CUMULATIVE FOR THE PERIOD FROM INCEPTION
(NOVEMBER 7, 2005) THROUGH MARCH 31, 2010. 4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH
PERIODS ENDED MARCH 31, 2010 AND MARCH 31, 2009, AND CUMULATIVE FOR
THE PERIOD FROM INCEPTION (NOVEMBER 7, 2005) THROUGH MARCH 31, 2010. 5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6 - 16

-2-

CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

Condensed Consolidated Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)

MARCH 31 June 30
2010 2009
----------- -----------

ASSETS
CURRENT ASSETS
Cash -- $ 185
Accounts receivable 17,605 7,303
Prepaid expense 22,697 1,285
Deferred debt issuance costs 35,700 --
----------- -----------
TOTAL CURRENT ASSETS 76,002 8,773
INVESTMENTS IN AFFILIATED COMPANIES (Note 4) -- 86,123
EQUIPMENT, NET 6,012 6,774
INTANGIBLE ASSET (Note 5) 311,941 --
----------- -----------
TOTAL ASSETS $ 393,955 $ 101,670
=========== ===========

LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 6) $ 130,935 $ 87,765
Accounts payable 500,490 276,459
Accrued liabilities 1,373,455 1,730,325
Loans payable (Note 7) 1,077,239 917,944
Due to stockholders 215,878 30,779
----------- -----------
TOTAL CURRENT LIABILITIES 3,297,997 3,043,272
----------- -----------

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' DEFICIT
CAPITAL STOCK (Note 9)
Preferred stock, par value $0.001 per share;
100,000,000 shares authorized; none issued and
outstanding. -- --
Common stock, par value $0.001 per share; 100,000,000
shares authorized; 85,953,715 (2009 -
46,859,750) shares issued and 70,667,680 (2009 -
46,859,750) shares outstanding. 85,954 46,860

TREASURY STOCK 15,286 --
DISCOUNT ON COMMON STOCK -- (116,224)
ADDITIONAL PAID IN CAPITAL 1,807,717 --
COLLATERALIZED SHARES ISSUED (137,500) --
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (168,359) 151,042
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (4,507,140) (3,023,280)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (2,904,042) (2,941,602)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 393,955 $ 101,670
=========== ===========

(The accompanying notes are an integral part of these condensed consolidated financial statements.)

-3-

CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three and Nine-Month Periods Ended March 31, 2010 and 2009, and
Cumulative for the Period from Inception (November 7, 2005) Through
March 31, 2010
(Expressed in U.S. Dollars)
(Unaudited)
Cumulative for
the period from
Inception
(November 7,
2005)
FOR THE THREE-MONTH PERIODS ENDED FOR THE NINE-MONTH PERIODS ENDED Through
MARCH 31, March 31, MARCH 31, March 31, March 31,
2010 2009 2010 2009 2010
------------------------------------------------------------------------------------------

REVENUES $ -- $ 199 $ -- $ 199 $ 246,417
------------------------------------------------------------------------------------------
OPERATING EXPENSES
Management and consulting fees 256,299 113,580 753,996 399,369 2,555,471
General and administration
expenses 115,262 249,845 448,055 256,540 1,234,223
Bad debt expense -- -- -- -- 99,738
Selling expenses -- -- -- -- 98,010
Depreciation expense 568 680 1,665 2,188 12,773
------------------------------------------------------------------------------------------

TOTAL OPERATING EXPENSES 372,129 364,105 1,203,686 658,097 4,000,215
------------------------------------------------------------------------------------------

LOSS FROM OPERATIONS (372,129) (363,906) (1,203,686) (657,898) (3,753,798)
------------------------------------------------------------------------------------------

OTHER EXPENSES
Equity in net loss of an
affiliated company (575) (4,173) (49,509) (13,125) (282,058)
Write off of investment in an
affiliated company -- -- -- -- (78,783)
Interest and financing costs (42,494) (27,853) (230,665) (67,612) (392,501)
------------------------------------------------------------------------------------------

TOTAL OTHER EXPENSES (43,069) (32,026) (280,174) (80,737) (753,342)
------------------------------------------------------------------------------------------

NET LOSS (415,198) (331,880) (1,483,860) (738,635) (4,507,140)

Foreign currency translation
adjustment (87,993) 54,730 (319,401) 316,147 (168,359)
------------------------------------------------------------------------------------------

COMPREHENSIVE LOSS $ (503,191) $ (277,150) $ (1,803,261) $ (422,488) $ (4,675,499)
==========================================================================================
LOSS PER SHARE
BASIC $ (0.01) $ (0.00) $ (0.03) $ (0.01)
=======================================================================

DILUTED $ (0.01) $ (0.00) $ (0.03) $ (0.01)
=======================================================================

WEIGHTED AVERAGE NUMBER
SHARES OUTSTANDING - BASIC 83,831,016 68,914,545 64,753,396 68,914,545
=======================================================================

WEIGHTED AVERAGE NUMBER
SHARES OUTSTANDING - DILUTED 83,831,016 68,914,545 64,753,396 68,914,545
=======================================================================

(The accompanying notes are an integral part of these condensed consolidated financial statements.)

-4-

CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

Condensed Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended March 31, 2010 and 2009, and
Cumulative for the Period from Inception (November 7, 2005)
Through March 31, 2010
(Expressed in U.S. Dollars)
(Unaudited)
Cumulative for
the period from
Inception
FOR THE NINE MONTH PERIODS ENDED (November 7, 2005)
MARCH 31, March 31, Through March 31,
2010 2009 2010
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,483,860) $ (736,635) $(4,507,140)
Adjustments for non-cash items:
Equity in net loss of an affiliated company 52,429 13,125 284,978
Writeoff of investment in an affiliated
company -- -- 78,213
Acquisition of intangible asset (265,225) -- (265,225)
Depreciation 1,826 2,188 12,934
Stock issued for services rendered 1,069,143 -- 1,104,722
Options issued 158,436 -- 158,436
Debt issuance costs 406,697 -- 406,697

Changes in non-cash working capital,
net of effects from reverse merger
transaction:
Accounts receivable (9,241) (642) (17,448)
Prepaid expenses 1,472 -- 190
Accounts payable 198,264 186,143 420,530
Accrued liabilities (355,064) 183,841 2,079,974
----------- ----------- -----------

NET CASH USED IN OPERATING ACTIVITIES 485,003 (351,980) (243,141)
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment -- -- (19,249)
Acquisition of investment -- -- (286,916)
----------- ----------- -----------

NET CASH USED IN INVESTING ACTIVITIES -- -- (306,165)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 651,029 393,470 1,616,004
Repayment of loans (101,712) (3,628) (106,001)
Proceeds from bank indebtedness 38,821 -- 148,687
Repayment of bank indebtedness (8,208) (16,201) (15,150)
Proceeds from issuance of capital stock 576,864 -- 576,950
Proceeds from stockholders' advances 273,476 -- 1,528,801
Repayments of stockholders' advances (151,967) (31,081) (1,367,977)
Repayment from related party (1,758,160) -- (1,758,160)
----------- ----------- -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES (479,857) 342,560 623,154
----------- ----------- -----------

EFFECT OF EXCHANGE RATE CHANGE ON CASH (5,331) (2,355) (73,878)
----------- ----------- -----------

NET (DECREASE) INCREASE IN CASH (185) (11,775) --

CASH - BEGINNING OF PERIOD 185 16,049 --
----------- ----------- -----------

CASH - END OF PERIOD $ -- $ 4,274 $ --
=========== =========== ===========

(The accompanying notes are an integral part of these condensed consolidated financial statements.)

-5-

CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
(Expressed in U.S. Dollars)
(Unaudited)

1. ORGANIZATION, DEVELOPMENT STAGE ACTIVITIES, AND GOING CONCERN

Consorteum Holdings, Inc. ("Holdings" and subsequent to the reverse
merger, the "Company"), formerly known as Implex Corporation, was
incorporated in the State of Nevada on November 7, 2005. On April 9,
2009, Holdings changed its name to Consorteum Holdings, Inc.

On June 15, 2009 Holdings entered into an agreement and plan of exchange
whereby Holdings acquired 100% of the issued and outstanding shares of
common stock of Consorteum Inc. ("Consorteum") from Consorteum's
stockholders, by exchanging 39,999,750 shares of Holdings' common stock,
in a reverse merger transaction. Consorteum is a company incorporated
under the laws of the province of Ontario on April 3, 2006. Prior to the
agreement and plan of exchange, Holdings had 29,860,000 shares of its
common stock, issued and outstanding. At the closing of the exchange
transaction, Holdings cancelled 23,000,000 shares of its common stock
held by one stockholder. As a result of the exchange, the principal
stockholders of Consorteum control 85% of Holdings. While Holdings is the
legal parent, Consorteum became the parent for accounting purposes.

Development Stage Activities
----------------------------

The Company provides pioneering technology solutions and management
expertise to companies and organizations looking to develop, streamline
or augment their methods of processing payment transactions. It operates
as a technology and services aggregator to meet the diverse needs of its
client base by leveraging its wide-ranging partner technologies to
develop end-to-end, turn-key card and payment transaction processing
solutions.

Going Concern Assumption
------------------------

The Company's condensed consolidated financial statements are presented
on a going concern basis, which contemplates the realization of assets
and discharge of liabilities in the normal course of business. The
Company's negative working capital and accumulated deficit during the
development stage raise substantial doubt as to its ability to continue
as a going concern. As of March 31, 2010, the Company had a negative
working capital of $3,221,995 (June 30, 2009 - $3,034,499) and a deficit
accumulated during the development stage of $4,507,140 (June 30, 2009 -
$3,023,280), and is in the process of renegotiating loan extensions.

The Company's continuance as a going concern is dependent on the
successful efforts of its directors and principal stockholders in
providing financial support in the short term; raising additional
long-term equity or debt financing either from its own resources or from
third parties; the successful negotiation of loan payments or extensions
as they come due; and the attainment of key contracts. In the event that
such resources are not secured, the assets may not be realized or
liabilities discharged at their carrying amounts, and differences from
the carrying amounts reported in these condensed consolidated financial
statements could be material.

-6-

1. ORGANIZATION, DEVELOPMENT STAGE ACTIVITIES, AND GOING CONCERN (cont'd)

Going Concern Assumption (cont'd)
---------------------------------

The accompanying condensed consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the inability of the
Company to continue as a going concern.

2. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles in the
United States ("US GAAP") for complete financial statements. In the
opinion of the Company's management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended
March 31, 2010 are not necessarily indicative of the results that may be
expected for the full fiscal year ending June 30, 2010. The accompanying
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements of the Company for the
fiscal year ended June 30, 2009.

BASIS OF CONSOLIDATION

The condensed consolidated financial statements include Consorteum Inc.,
Consorteum Holdings Inc. and My Golf Rewards Canada Inc. from January 13,
2010 through March 31 2010. All material inter-company amounts have been
eliminated.

-7-

3. FAIR VALUE MEASUREMENTS

The Company adopted ASC 820, "Fair Measurement and Disclosure" as of June
15, 2009. ASC 820 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measured date, not
adjusted for transaction costs. ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels giving the highest priority to
quoted prices in active markets for identical assets and liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels are described below:

Level 1 - Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets.

Level 2 - Other inputs that are directly or indirectly
observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or
no market activity.

The fair value hierarchy also requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. Cash and cash equivalents (Level 1), other
receivables, accounts payable, accrued liabilities, loans payable, and
due to related parties (Level 2) are reflective in the consolidated
balance sheets at carrying value, which approximates fair value due to
the short-term nature of these instruments.

4. INVESTMENTS IN AFFILIATED COMPANIES

MARCH 31, June 30,
2010 2009
--------- ---------
Acquisition costs
49% ownership interest in My Golf Rewards
Canada Inc. $ 343,502 $ 343,502
--------- ---------
Accumulated equity in net loss of My Golf
Rewards Canada Inc.
Balance, beginning of period (257,379) (224,945)
Equity in net loss for the current year (48,934) (17,777)
Translation adjustment 9,528 (14,657)
--------- ---------

Balance, end of period (296,785) (257,379)
Consolidation (46,717) --
--------- ---------

Total $ -- $ 86,123
========= =========

On January 13, 2010, the Company purchased an additional 26% interest
in My Golf Rewards Canada Inc. for a cash payment of $2 and the
assumption of the liabilities. The assets, liabilities and operating
results of My Golf Rewards Canada Inc. have been consolidated from that
date. As at January 13, 2010, the Company owns 75% of the issued and
outstanding shares of My Golf Rewards Canada Inc.

Cumulative operating losses of $282,058 arising in My Golf Rewards
Canada Inc. prior to January 13, 2010 have been accounted for under the
equity method.

-9-

5. INTANGIBLE ASSET

As a result of the acquisition of the additional interest in My Golf
Rewards Canada Inc., the Company acquired an interest in the software
license. Accordingly, the asset has been recorded at its estimated
acquisition cost, which value has been supported by recent arms length
negotiations.

The asset will be amortized on a systematic basis over its estimated
life. The license is subject to an annual renewal fee, which fee will be
expensed as incurred.

Purchase price allocation as follows:

Purchase Price $ 46,717
--------

Cash $ 9,815
Accounts Receivable $168,654
--------
Total Assets $178,469
--------

Accounts Payable $357,542
Loan Payable $ 86,153
--------
Total Liabilities $443,695
--------

Negative Net Assets ($265,224)
---------

Estimated Acquisition Cost $ 311,941
=========

6. BANK INDEBTEDNESS

Bank indebtedness is comprised of a Royal Bank of Canada ("RBC") demand
term loan, in the amount of $92,296 (June 30, 2009 - $87,765) and an
overdraft of $38,639 (June 30, 2009 - $nil). The loan is repayable on a
monthly basis at $1,792 plus interest, at RBC's prime rate plus 2% per
annum. The loan matures June 2013. The loan is secured by a general
security agreement signed by the Company constituting a first ranking
security interest in all personal properties of the Company and personal
guarantees from certain stockholders.

7. LOANS PAYABLE

MARCH 31, June 30,
2010 2009
------- -------
Loan 1
Investment loan, secured against shares of an individual shareholder,
interest rate of 18% per annum, principal
due extended to February 13, 2011 299,130 229,091

Loan 2
Investment loan, secured against 1,500,000
shares of an individual shareholder, bearing no interest,
due February 26, 2010. 200,000 --

Loan 3
Investment loan, unsecured, bearing no interest,
no fixed terms of repayment. 145,721 146,166

Loan 4
Investment loan, unsecured, interest rate of 18%,
per annum, no fixed terms of repayment. 98,279 83,887

Loan 5
Investment loan, unsecured, bearing no interest,
monthly payments commencing January 30, 2010,
interest of 15% accrued on late payments. 94,545 --

-10-

7. LOANS PAYABLE (cont'd)

MARCH 31, June 30,
2010 2009
---------- ----------
Loan 6
Investment loan, unsecured, interest rate of 10%
Per annum, no fixed terms of repayment. 85,800 --

Loan 7
Investment loan, unsecured, interest rate of 18%
per annum, no fixed terms of repayment. 34,703 26,577

Loan 8
Investment loan, unsecured, interest rate of 3%
per annum, demand loan no fixed date. 31,404 --

Loan 9
Investment loan, unsecured, interest rate of 18%
per annum, principal due October 25, 2010. 30,212 23,138

Loan 10
Investment loan, unsecured, interest rate of 18%
per annum, principal due extended to February 17, 2011. 29,907 22,905

Loan 11
Investment loan, unsecured, interest rate of 18%
per annum, no fixed terms of repayment. 25,076 45,992

Loan 12
Investment loan, unsecured, non interest bearing
With no fixed term of repayment. 2,462 --

Loan 13
Investment loan, secured against shares of an individual shareholder,
interest rate of 18% per annum, no fixed
terms of repayment. Debt has been converted to shares. -- 315,188

Loan 14
Investment loan, unsecured, bearing no interest,
no fixed terms of repayment. -- 25,000

---------- ----------

$1,077,239 $ 917,944
========== ==========

Certain of the loans were due for repayment in February 2010 and have
been negotiated and extended. As of the date of this report extension
terms have been agreed to for two outstanding loans and the Company
continues to hold discussions on the balance of one defaulted loan (Loan
2).

On February 3, 2010 the Company had negotiated a debt facility from an
unrelated third party, which provided up to $404,746 in the form of a
promissory note bearing interest at 15% per annum. The promissory note
contained a conversion feature that allows the holder of the note to
convert the note into shares of common stock of the Company at a 50%
discount. Funds are advanced to the Company in tranches and immediately
converted into common shares and as at March 31, 2010, a total of
$124,000 of this facility has been advanced and converted into 17,500,000
common stock.

-11-

8. RELATED PARTY TRANSACTIONS AND BALANCES

The following were charged to the Company by certain stockholders for
services provided:

MARCH 31, June 30,
2010 2009

a) Management and consulting fees $ 253,557 $ 407,455
==============================

b) General and administrative $ 44,797 $ 62,932
==============================

These transactions were in the normal course of business and recorded at
an exchange value established and agreed upon by the related parties.

Included in accrued liabilities is $519,460 (June 30, 2009 - $1,126,109)
owed to certain stockholders, directors and officers for management fees,
consulting fees and other expenses.

Included in accounts payable as at June 30, 2009 was an amount of
$122,693 owed to My Golf Rewards Canada Inc., an affiliated company, as
part of the Company's equity investment obligation (see Note 4). Any such
balances as of March 31, 2010 are now eliminated on consolidation.

-12-

9. CAPITAL STOCK

The following transactions occurred during the nine-month period:

On July 6, 2009, the Board of Directors passed a resolution to issue
3,280,000 shares of common stock to investor relations companies and
specified consultants for purpose of building market awareness. The
shares were issued between July 7 and September 14, 2009.

On July 13, 2009, the Company issued 300,000 shares of the Company's
common stock, pursuant to subscription agreements dated July 13, 2009,
for a value of $130,988.

On September 19, 2009, at a meeting of the Board of Directors, the
Company granted 2,500,000 stock options pursuant to the stock option plan
established by the Company. In addition, the Board of Directors approved
an allotment of 5,800,000 common stock of the Company, valued at $0.15
per share of common stock, to satisfy liabilities owed to directors and
officers of the Company.

On November 24, 2009, the Company issued 3,125,000 shares of common stock
to a company, in relation to marketing services provided for a value of
$50,000.

On November 25, 2009, the Company issued 3,125,000 shares of common stock
to a company, in relation to marketing services provided for a value of
$50,000.

On December 1, 2009, the Company issued 1,500,000 shares of common stock
to a company, in relation to issuance of debt of $130,000.

On December 9, 2009, the Company issued 1,500,000 shares of common stock
to a company pursuant to a six-month public and investor relation service
contract for $60,000.

On December 18, 2009, the Company issued 8,750,000 shares of common stock
in relation to legal services provided for a value of $87,500. The common
stock has been put into an escrow account until May 31, 2010 and will be
released back to the Company if the services are paid in full, prior to
that date.

On January 18, 2010, the Company settled an outstanding debt of $300,000
plus interest with a company through the issuance of 1,500,000 restricted
shares of common stock of the Company.

On February 3, 2010, the holder of the promissory note converted $50,000
of the note into 6,500,000 shares of common stock of the Company. The
funds received by the Company were used to fulfill debt obligations owed
to two of the Company's executives.

On March 1, 2010, the Company entered into a professional services
agreement (the "PSA") with its corporate counsel, pursuant to which the
Company agreed to issue 5,000,000 shares of its common stock to its
corporate council as collateral for compensation for accrued and unpaid
professional fees of $50,000 for the period between January 1, 2009 and
June 30, 2009.

On March 1, 2010, the Company issued a total of 3,000,000 shares of its
common stock to a director and Chairman of the Board of the Company. Of
this total 1,500,000 shares were issued as indemnification for the
foreclosure and seizure by a Company creditor of the identical number of
a director's shares posted by the director as collateral for a loan by
the creditor to the Company.
The remaining 1,500,000 shares were issued to the director at $0.01 cents
a share to offset $15,000 of accrued expenses.

On March 1, 2010, the holder of the promissory note converted $50,000 of
the note into 7,500,000 shares of common stock of the Company. The funds
received by the Company were used to fulfill debt obligations owed to the
Company's executives.

On March 11, 2010, the holder of the promissory note converted $24,000 of
the note into 3,500,000 shares of common stock of the Company. The funds
received by the Company were used to fulfill debt obligations owed to the
Company's executives.

-13-

9. CAPITAL STOCK (cont'd)

On March 11, 2010, a shareholder of the Company returned 1,500,000 shares
to the Company's treasury.

On March 18, 2010, two shareholders of the Company returned 1,000,000
shares each to the Company's treasury.

On March 31, 2010, a shareholder of the Company returned 11,786,035
shares to the Company's treasury.

WARRANTS

As at March 31, 2010, 4,140,000 warrants were outstanding, having an
exercise price of $0.001 per share of common stock with a remaining
contractual life of 1.75 years.

OPTIONS

As at March 31, 2010, 2,500,000 options were outstanding, having an
exercise price of $0.15 per share of common stock with a remaining
contractual life of 2.48 years. These options were valued at $158,436
using the Black-Scholes model, using key assumptions of volatility of
62%, risk-free interest rate of 1.56%, a term life equivalent to the life
of the options and reinvestment of all dividends in the Company of zero
percent.

The Company has a commitment to issue 500,000 stock options to a private
investor as a bonus for a loan, and a further 50,000 stock options to an
individual as a finder's fee which commitments were made on January 12,
2010. As at March 31, 2010, these options have not been issued.

-14-

10. INCOME TAXES

At March 31, 2010, the Company has unused net operating loss
carry-forwards of approximately $3,111,000 which expire at various dates
through 2029. Most of this amount is subject to annual limitations under
certain provisions of the Internal Revenue Code related to "changes in
ownership".

As of March 31, 2010, the deferred tax assets related to the
aforementioned carry-forwards have been fully offset by valuation
allowances, since utilization of such amounts is not presently expected
in the foreseeable future.

11. CASH FLOW SUPPLEMENTAL INFORMATION

During the period, the Company had cash flows arising from interest and
income taxes paid as follows:

Cumulative for
the period from
Inception
Nine Months Nine Months (November 7,
Ended Ended 2005) Through
March 31, March 31, March 31,
2010 2009 2010

Income tax $ -- $ -- $ --
==================================================

Interest $ -- $ -- $ 57,104
==================================================

12. COMMITMENTS AND CONTINGENCIES

The Company has contractual commitments for various management and
consulting fees and general and administrative expenses totaling
approximately $192,100 for 2010. Of this amount, approximately $104,300,
is committed to certain stockholders of the Company.

-15-

CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Consolidated Financial Statements
December 31, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)

13. SUBSEQUENT EVENTS

On May 5, 2010 the Company came to a settlement and conversion
agreement with Quality Stocks and Illuminated Financial Relations Corp
to convert $40,000 of previously advanced funding into 8,000,000 common
shares of Consorteum Holdings. 4,000,000 shares were issued to each
party.

-16-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

EXECUTIVE LEVEL OVERVIEW

Consorteum, Inc. (hereafter "the Company") was incorporated under the
laws of the Province of Ontario on April 3, 2006. On June 15, 2009, the Company
became a wholly-owned subsidiary of Consorteum Holdings, Inc., a Nevada
corporation ("CHI" or the "Parent"), as a result of the closing under an
agreement and plan of exchange pursuant to which all of the Company stockholders
exchanged all of their issued and outstanding shares of the Company for an
equivalent number of shares of common stock of CHI. As a result of the exchange
agreement closing, The Company will function as the operating company and CHI
will be a holding company.

The Company will focus on providing leading edge solutions to financial
institutions, healthcare, government, associations, and private sector companies
for electronic transaction processing and systems integration. The Company's
services provide customized, innovative technology solutions that create,
augment and enhance customers' existing systems. These enhancements and programs
are aimed to serve underserved markets and provide equal opportunity for
financial services to a greater audience. The Company works with a multitude of
global technology partners that enable the Company to create customized
solutions for each of its clients across a broad spectrum of industries.

Until the closing of the exchange agreement, the Company relied on
financing from sales of its common stock to related parties and private lending
arrangements with individual investors. Management believes the Company's
changed status as a subsidiary of a public company will make it easier to attain
working capital stability, allowing the company to grow and meet its operational
forecast. The Company continues to seek capital funding and required to raise an
estimated $750,000 of operating capital in order to successfully implement the
first phases of the various contract described in Item 1 entitled "The Business"
in its filing on Form 10-K for the year ended June 30, 2009. To the extent that
the Company receives less than the amount sought or receives it over time
instead of one payment, management will be required to select which initiatives
to deploy, which best generate best return of investment revenues and will have
to defer other projects until receipt of additional capitalization funding.

The Company has engaged one investment group and is currently in
negotiations with several others for potential investor funding for the Company;
however, the amount, terms and conditions of any such investment are still to be
determined, and there can be no assurance that any such negotiations will result
in a closing for all of the funds needed or be concluded successfully at all.

The Company had several existing contracts in place that were to begin
in the fourth quarter of 2009. Due to the financial constraints several of these
project deployments have been moved to the second quarter of 2010.
The Company recently signed an agreement with RoseBank Capital to raise (on a
best-efforts basis) of upwards of $500,000 for the My Golf Rewards program.
Additional funding is also being pursued. The Company expects to earn the
majority of its revenues in the near future from transaction processing from its
My Golf Rewards program, First Nations deployment, and its international payroll
programs.

QUARTERLY UPDATE.

On January 12, 2010, the Board approved the issuance of 500,000 stock options to
a private investor as a bonus for a loan advanced to the Company. In addition,
the Board approved the issuance of 50,000 stock options to an individual as a
finder's compensation fee.

After review of the golf program and financial results, the Company decided to
increase its ownership stake in My Golf Rewards Canada Inc. Consorteum is also
in dialogue with an international group for expansion of the My Golf Rewards
program. On January 13, 2010, the Company increased its ownership stake in My
Golf Rewards Canada Inc, from 49% to 75%. The Company has committed to
increasing its financial commitment in My Golf Rewards by $250,000 in return for
the increase in its ownership position. The Company's has engaged RoseBank
Capital to raise funding (on a best efforts basis) of up to $500,000 for the
development of the program and expects to begin large-scale deployment this
coming summer.

-17-

On January 16, 2010, the Company signed a 50/50 joint venture agreement with
John Bernard, a First Nation representative to create a First Nations financial
services company providing financial products. The services will include benefit
cards, payroll cards, prepaid services, merchant discount rates, and point of
sale solutions. The Company is in the first stage of deployment and will be
launching its first benefits card program within the next 45 days.

On January 18, 2010, the Company settled an outstanding debt of $300,000 plus
interest with Lucky Pearl Investments Ltd. through the issuance of 1,500,000
restricted shares of common stock of the Company.

On January 18, 2010, the Company signed an agreement with NXSystems Inc. which
enables the Company as agent to offer its clients global card issuance, multiple
currency settlement, global electronic payments, e-wallets, and a variety of
other financial products and services. The Company is currently working with
NXSystems on several new projects including payment processing, ACH and EFT
invoice settlement and international payroll. Additional new contract will be
forthcoming.

On January 20, 2010, the Company was contracted by Blue Sea Manning Ltd. to
provide consulting services for their UK based recruiting company within the
private yachting industry. The Company will provide Blue Sea Manning with global
multi-currency settlement, payroll cards, expense cards and e-wallet
functionality. The program is in current Beta testing and will be expanding to
the entire company payroll within the next month.

On January 26, 2010 the Company approved the issuing of 10,000,000 Convertible
Preferred Shares to Mr. Craig Fielding and 10,000,000 Convertible Preferred
Shares to Mr. Quent Rickerby in consideration of services to the corporation at
a share price of $0.001 per share.

On February 3, 2010, the Company obtained debt financing in the form of a
promissory note from an unrelated company amounting to $404,746. The promissory
note is due within twelve months and bears interest of 15% per annum. The
promissory note contains a conversion feature that allows the holder of the note
to convert the note into shares of common stock of the Company at a 50% discount
of the average three dip bid on the day of conversion. The holder can convert
the promissory note in whole or in part with the remaining balance of the debt
accruing interest in the event of a partial conversion.

On March 1, 2010 the Board, by unanimous written consent, and holders of a
majority of the issued and outstanding shares of the Company's common stock
approved an amendment to the Articles of Incorporation to increase the number of
authorized shares of Common Stock to Five Hundred Million (500,000,000) shares
from One Hundred Million (100,000,000) shares. The increase in the authorized
shares will become effective upon filing the amendment with the Secretary of
State of the State of Nevada which the Company anticipates will occur
approximately mid June 2010.

The Company is currently amending its Articles of Incorporation to create a
class of Convertible Preferred Shares. Each Convertible Preferred Share may be
converted into 2 common shares.

On March 12, 2010 Richard C. Fox, P.A foreclosed on a pledge of 8,815,000 shares
of common stock pledged by the Company's CEO, Craig A. Fielding, as collateral
for $100,000 promissory note the Company delivered at the closing under the
exchange agreement in June 2009. The Company will replace these shares by
issuing Convertible Preferred Shares to Mr. Fielding when it amends its articles
of incorporation to create a series of Convertible Preferred Shares. Once
approved, the Company will issue Craig Fielding 4,407,500 Convertible Preference
Shares to replace the 8,815,000 common shares Mr. Fielding had held in escrow
and used to satisfy the outstanding $100,000 note due to Richard C. Fox, P.A.

On March 14, 2010. Once approved, the Company will issue Craig Fielding
4,407,500 Convertible Preference Shares to replace the 8,815,000 common shares
Mr. Fielding had held in escrow and used to satisfy the outstand $100,000 note
due to Richard C. Fox, P.A.

The financial results of the nine months ended on March 31, 2010 are reflective
of an early stage company in its initial development phase that has been focused
on capital funding, growth of its project management team for deployments of new
and existing contracts. After review of the quarter and the first nine months of
the current fiscal year, management's focus for 2010 continues to be on new
global business development opportunities and expanding its technology partners
in order to move the Company forward into the next growth phase of development.
The Company is in final discussions on a number of overseas projects within the
international payroll marketplace. These new projects will enable the company to
deploy large-scale programs with increased revenue opportunities, while billing
upfront consulting fees.

-18-

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, the Company had $76,002 in total current assets,
compared to total current assets of $8,773 as of June, 30, 2009. The March 31,
2010 current assets were comprised of $17,605 in accounts receivable and $22,697
in prepaid expenses and $35,700 in deferred debt issuance costs. As at March 31,
2010, the Company's fixed assets consisted of computer equipment valued at
$19,058 less accumulated depreciation of $32,248.

Until the Company has the necessary financial operating capital to
execute its business plan, revenues will be limited due to program deployment
delays. Many of the existing contracts and initiatives require capital
expenditure by the Company.

RESULTS OF OPERATIONS

The Company had revenues of $nil for the nine-months ended March 31,
2010, compared with $nil for the nine-months ended March 31, 2009. The Companies
existing contracts require a ramp up period for revenue generation and continued
project management and sales support. In addition the Company still requires
significant capitalization for operations to fully execute the current
contracts. The Company has engaged in a number of new contracts in 2010, that
will see upfront management retainers for work done and more targeted revenue
opportunities. For the nine-months ended March 31, 2010, the Company had a net
loss of $1,483,860 compared to a net loss of $738,635 for the nine-months ended
March 31, 2009.

Operating expenses increased from $658,097 for the nine-months ended
March 31, 2009 to $1,203,686 for the nine-months ended March 31, 2010. The
substantial majority of the increase in costs for the past nine months can be
attributed to the acquisition costs of Consorteum Holdings, Inc. and subsequent
reverse merger. The Company continues to incur significant overhead costs for
compliance requirement for the publicly trading entity. The Company has also
incurred significant cost increases for auditing, accounting, legal, management,
consulting, investor and public relations.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not currently have any off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

As at March 31, 2010 the Company did not have any significant
contractual obligations with the exception of a contract to pay $100,000 in four
equal quarterly installments of $25,000 to Fidelisoft under a software licensing
agreement for the period September 2009 through August 2010.

The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and judgments that affect our reported assets,
liabilities, revenues, and expenses, and the disclosure of contingent assets and
liabilities. We base our estimates and judgments on historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
Future events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:

-19-

Risk and Uncertainties

Factors that could affect the Company's future operating results and
cause future results to vary materially from expectations include, but are not
limited to, lower than anticipated retail transactions, and inability to control
expenses, technology changes in the industry, relationships with processing
agencies and networks, changes in its relationship with related parties
providing operating services to the Company and general uncertain economic
conditions. Negative developments in these or other risk factors could have
material adverse effects on the Company's future financial position, results of
operations and cash flow.

Cash and Cash equivalents

The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents. There are no cash
equivalents at March 31, 2009 or March 31, 2010.

Equipment, net

Equipment is recorded at cost. Depreciation, based on the estimated
useful life of the equipment, is provided at an annual rate of 30% based on the
declining-balance method.

Impairment of long lived assets

In accordance with Statement of Financial Accounting Standard ("SFAS")
No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS," long
lived assets to be held and used are analyzed for impairment whenever events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. The Company evaluates at each balance sheet date whether events and
circumstances have occurred that indicate possible impairment. If there are
indications of impairment, the Company uses future undiscounted cash flows of
the related asset or asset grouping over the remaining life in measuring whether
the assets are recoverable. In the event such cash flows are not expected to be
sufficient to recover the recorded asset values, the assets are written down to
their estimated fair value. Long lived assets to be disposed of are reported at
the lower of carrying amount or fair value of asset less cost to sell. As
described in Note 1, the long-lived assets have been valued on a going concern
basis. However, substantial doubt exists as to the ability of the Company to
continue as a going concern. If the Company closes operations, the asset values
may be materially impaired.

Accounts Receivable

The Company carries its accounts receivable at invoice amount, less an
allowance for doubtful accounts. On a periodic basis, the Company evaluates its
accounts receivable and establishes an allowance for doubtful accounts, based on
a history of past write-offs and collections and current credit conditions.

Revenue Recognition

The Company recognizes revenue in accordance with U.S. Securities and
Exchange Commission (the "SEC") Staff Accounting Bulletin No. 104, Revenue
Recognition ("SAB 104"). SAB 104 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered; (3) the
selling price is fixed and determinable; and (4)collectability is reasonably
assured.

-20-

Equity Investments

Equity investments include entities over which the Company exercises
significant influence but does not exercise control. These are accounted for
using the equity method of accounting and are initially recognized at cost net
of any impairment losses. The Company's share of these entities' profits or
losses after acquisition of its interest is recognized in the statement of
operations and cumulative post-acquisition movements are adjusted against the
carrying amount of the investment. When the Company's share of losses of these
investments equals or exceeds the carrying amount of the investment, the Company
only recognizes further losses where it has incurred obligations or made
payments on behalf of the affiliate.

Joint ventures are entities over which the Company exercises control
jointly with another party or parties. Joint ventures are also accounted for
under the equity method as described above.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"ACCOUNTING FOR INCOME TAXES." Deferred tax assets and liabilities are recorded
for differences between the financial statement and tax basis of the assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is recorded for the amount of income tax payable or
refundable for the period increased or decreased by the change in deferred tax
assets and liabilities during the period.

Foreign Currency Translations

In accordance with the provision of SFAS No. 52, "FOREIGN CURRENCY
TRANSLATION," the Company, whose functional currency is the Canadian dollar,
translates its balance sheet into U.S. dollars at the prevailing rate at the
balance sheet date and translates its revenues and expenses at the average rates
prevailing during each reporting period. Net gains or losses resulting from the
translation of financial statements are accumulated and charged directly to
accumulated comprehensive income or (loss), a component of stockholders' equity
or (deficit). Realized gains or losses resulting from foreign currency
transactions are included in operations for the period.

Comprehensive Income and Loss

The Company applies the provisions of SFAS No. 130, "REPORTING
COMPREHENSIVE INCOME." Unrealized gains and losses from foreign exchange
translation are reported in the accompanying statements as comprehensive income
or loss.

Earnings or loss per share

The Company accounts for earnings or loss per share pursuant to SFAS
No. 128, "EARNINGS PER SHARE," which requires disclosure on the financial
statements of "basic" and "diluted" earnings (loss) per share. Basic earnings
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the year. Diluted earnings
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding plus potentially dilutive securities
outstanding for each year. The computation of diluted earnings (loss) per share
has not been presented as its effect would be anti-dilutive.

-21-

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 estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. These estimates are based on management's
best knowledge of current events and actions the Company may undertake in the
future. Actual results may ultimately differ from those estimates. These
estimates are reviewed on an ongoing basis and as adjustments become necessary,
they are reported in earnings in the period in which they become known.

Financial instruments

Unless otherwise noted, it is management's opinion that the Company is
not exposed to significant interest, currency or credit risks arising from the
financial instruments. The fair value of the financial instruments approximates
their carrying values, unless otherwise noted.

Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest risk or currency risk and are fully dependent upon the
volatility of these rates. The Company does not use derivative instruments to
moderate its exposure to financial risk, if any.

Concentration of credit risk

SFAS No. 105, "Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentration of
Credit Risk," requires disclosure of any significant off-balance-sheet risk and
credit risk concentration. The Company does not have significant
off-balance-sheet risk or credit concentration. The Company maintains cash with
major financial institutions. From time to time, the Company has funds on
deposit with commercial banks that exceed federally insured limits. Management
does not consider this to be a significant credit risk as these banks and
financial institutions are well-known.

Comparative financial information

Certain financial information for the year ended June 30, 2009, has
been reclassified to conform with the financial statement presentation adopted
in the current year.

Recent accounting pronouncements

In August 2009, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU")2009-05, "Measuring Liabilities at
Fair Value" ("ASU 2009-05"), which clarifies, among other things, that when a
quoted price in an active market for the identical liability is not available,
an entity must measure fair value using one or more specified techniques. ASU
2009-05 was effective for the first reporting period, including interim periods,
beginning after issuance. The company adopted the update effective July 1, 2009,
with no impact on its financial statements.

-22-

In October 2009, the FASB issued ASU 2009-13, "Multiple-Deliverable
Revenue Arrangements" ("ASU 2009-13"). ASU 2009-13 applies to revenue
arrangements currently in the scope of FASB Accounting Standards Codification
("ASC") Subtopic 605-25, "Multiple Element Arrangements", and provides
principles and application guidance on whether arrangements with multiple
deliverables exist, how the deliverables should be separated, and the
consideration allocated to the deliverables. ASU 2009-13 is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. The company is currently
reviewing the effect, if any, the proposed guidance will have on its financial
statements.

In December 2009, the FASB issued ASU 2009-17 which codifies SFAS No.
167, "Amendments to FASB Interpretations No. 46(R)" issued in June 2009. ASU
2009-17 requires a qualitative approach to indentifying a controlling financial
interest in a variable interest entity ("VIE"), and requires ongoing assessment
of whether an entity is a VIE and whether an interest in a VIE makes the holder
the primary beneficiary of the VIE. ASU 2009-17 is effective for annual
reporting periods beginning after November 15, 2009. The Company does not expect
the adoption of ASU 2009-17 to have a material impact on its financial
statements.

In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures
about Fair Value Measurements" ("ASU 2010-6"). The standard amends ASC Topic
820, "Fair Value Measurements and Disclosures" to require additional disclosures
related to transfers between levels in the hierarchy of fair value measurements.
ASU 2010-6 is effective for interim and annual fiscal years beginning after
December 15, 2009. The standard does not change how fair values are measured,
accordingly the standard will not have an impact on the Company.

The FASB issues ASUs to amend the authoritative literature in
Accounting Standards Certification ("ASC"). There have been a number of ASUs to
date that amend the original text of ASC. Except for the ASUs listed above,
those issued to date either (i) provide supplemental guidance, (ii) are
technical corrections, (iii) are not applicable to the Company or (iv) are not
expected to have a significant impact on the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in
Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
amended) that are designed to ensure that information required to be disclosed
in the Company's periodic reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including the Company's principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosures.

-23-

Under SEC Rules that affect the Company, the Company is required to
provide management's report on internal control over financial reporting for its
first fiscal year ending on or after December 15, 2009. The Company has prepared
management's report as required.

The Company is not required to file the auditor's attestation report on
internal control over financial reporting until it files an annual report for
its fiscal year ending on June 30, 2010.

As of the end of the period covered by this report, management carried
out an evaluation, under the supervision and with the participation of the
Company's principal executive officer and principal financial officer, of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the Company's
principal executive officer and principal financial officer concluded that its
disclosure controls and procedures were effective at a reasonable assurance
level to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. In addition, the Company's principal executive officer and principal
financial officer concluded that its disclosure controls and procedures were
effective at a reasonable assurance level to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure.

ITEM 4T. CONTROLS AND PROCEDURES.

Management's report on internal control over financial reporting

The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company's
internal control over financial reporting is designed to provide reasonable
assurance as to the reliability of the Company's financial reporting and the
preparation of financial statements in accordance with generally accepted
accounting principles. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Management conducted an evaluation of
the effectiveness of the Company's internal control over financial reporting as
of March 31, 2010. We identified the following material weakness in our internal
control over financial reporting- we did not have adequately segregation of
duties, in that we only had one person performing all accounting-related on-site
duties. Because of the "barebones" level of relevant personnel, however, certain
deficiencies which are cured by separation of duties cannot be cured, but only a
monitored as a weakness. In addition, we do not have an independent person
serving on the Audit Committee, and we also do not have any person with the
qualifications to serve as an audit committee financial expert.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting
identified in connection with our evaluation that occurred during our last
quarter (our fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

-24-

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

The following risk factors apply to the Company, its business, the
industry in which it operates and the common stock and market in which it
trades. They should be read carefully by anyone with an interest in the Company
who should consider the information together with the other material in this
report. Some of the statements in "Risk Factors" are forward looking statements.

RISKS RELATED TO OUR BUSINESS OPERATIONS

THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN
UNLESS WE RAISE SUBSTANTIAL AMOUNTS OF CAPITAL.

In its report dated September 29, 2009, the independent registered
public accounting firm for the company stated that the financial statements for
the years ended June 30, 2009 and 2008 and for the period of inception (November
7, 2005) to June 30, 2009, were prepared assuming that the company would
continue as a going concern. Our ability to continue as a going concern is an
issue raised as a result of cash flow constraints, an accumulated deficit of
$4,505,957 as at March 31, 2010 and recurring losses from operations. We
continue to experience losses. Our ability to continue as a going concern is
subject to the ability to generate a profit from new activities and/or obtain
necessary funding from outside sources, including additional funds from the sale
of the company's securities or loans from financial institutions/individuals
where possible. The continued operating losses and stockholders' deficit
increases the difficulty in meeting such goals and there can be no assurances
that such methods will prove successful, or that these funds will be available
at the times or in the amounts required on terms acceptable to us.

WE HAVE A LIMITED OPERATING HISTORY

Although we were incorporated in 2006, we are a development stage
company. We have a limited operating history and will likely encounter the risks
and difficulties frequently encountered by early stage companies. Such risks
include, without limitation, the following:

o amount and timing of operating costs and capital expenditures
in relation to expansion of our business, operations, and
infrastructure;
o timeline to develop, test, coordinate, market and sell our
card programs and processing procedures;
o negotiation and implementation of strategic alliances or
similar arrangements with companies with sufficient resources
to support our programs and processing transactions;
o need for acceptance of products;
o ability to anticipate and adapt to a competitive market and
rapid technological developments; and
o dependence upon key personnel.

-25-

We cannot be certain our strategy will be successful or that we will
successfully address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition and results of
operations could be materially and adversely affected.

WE HAVE LIMITED SALES, MARKETING, AND DISTRIBUTION CAPABILITIES. WE WILL BE
REQUIRED TO EITHER DEVELOP SUCH CAPABILITIES OR TO OUTSOURCE THESE ACTIVITIES TO
THIRD PARTIES.

We currently have limited sales, marketing and distribution
capabilities. In order to succeed, we will be required to either develop such
capabilities or to outsource these activities to third parties. We can provide
no assurance that third parties will be interested in acting as our outsourced
sales, marketing, and distribution arms on a timely basis, on commercially
reasonable terms, or at all. If we are unable to establish sales, marketing, or
distribution capabilities either by developing our own organization or by
entering into agreements with others, we may be unable to successfully sell any
products that we are able to begin to commercialize, which would have a material
adverse effect upon our business, prospects, financial condition, and results of
operations. Further, in the event that we are required to outsource these
functions on disadvantageous terms, we may be required to pay a relatively large
portion of our net revenue to these organizations, which would have a material
adverse effect upon our business, prospects, financial condition, and results of
operations.

RISKS RELATING TO THE CREDIT CARD AND TRANSACTION PROCESSING INDUSTRY

THE LEVEL OF TRANSACTIONS GENERATED BY OUR DIFFERENT CARD PROGRAMS IS SUBJECT TO
SUBSTANTIAL SEASONAL VARIATION WHICH MAY CAUSE OUR QUARTERLY RESULTS TO
FLUCTUATE MATERIALLY.

Historic industry experience is that the level of transactions is
subject to seasonal variation. Transaction levels have consistently been higher
in the last quarter of the year due to increased use of our prepaid credit card
programs during the holiday season. Transaction levels are greater for our
loyalty and reward programs during the second and third quarter of the year. The
level of transactions drops in the first quarter, during which transaction
levels are generally the lowest we experience during the year. As a result of
these seasonal variations, our quarterly operating results, which depend in part
on the number and value of the transactions processed, may fluctuate materially.

THE STABILITY AND GROWTH OF MULTIPLE TYPES OF CARD PROGRAMS DEPENDS ON
MAINTAINING AGREEMENTS WITH SPONSORSHIP BANKS, SOFTWARE PROVIDERS AND
PROCESSORS.

All of our supplier agreements such as those with banks, processing
companies and software companies, have expiration dates. Although our suppliers
are generally obligated to renew our agreements, they may have the option not to
do so. Therefore, one or more of our critical suppliers such as a bank or
processing company may terminate its contract at expiration. Although we would
have notice of any such decision, we may not be able to replace the relationship
in a timely manner or on favorable economic terms or at all. The requirement to
replace any critical supplier relationship would also generate additional costs
in the replacement process. The inability to maintain or replace these
agreements could have a material adverse effect on our business, and financial
condition or results of operations.

-26-

WE DO NOT CONTROL THE TRANSACTION FEES FOR SOME OF OUR PROGRAMS IN THE MARKETS
WHERE THEY OPERATE. THE INTERCHANGE FEES CHARGED AND SHARED ARE ESTABLISHED BY
THE SPONSORING PROCESSORS OR FINANCIAL INSTITUTIONS.

The amount of fees we receive per transaction is set in the markets in
which we do business. We have and will continue to have card acceptance
agreements with some banks under which fees are set. Also, we derive a portion
of our revenues from "interchange fees" that are set by processors, financial
institutions and the major card associations. We are not in a position to
influence these fees. A significant decrease in the interchange fee could
adversely affect our revenues.

WE ARE DEPENDENT UPON ELECTRONIC FINANCIAL TRANSACTION PROCESSORS OR THE CARD
ISSUING INSTITUTION TO PROVIDE ASSISTANCE IN OBTAINING SETTLEMENT OF FUNDS
RELATING TO INTERCHANGE REVENUE AS WELL AS OTHER TRANSACTIONS FEES AGREED UPON.

We have agreements in place related to transaction based fee revenues
on credit and debit cards issued by banks. We also have in place arrangements
for the settlement of these types of transactions, but in some cases we do not
have a direct relationship with the card-issuing bank and we rely for settlement
on the regulation rules that are administered by card associations (such as Visa
or MasterCard and others). These contracts are typically terminable by a bank or
processing company on 90 days notice. We have arrangements in place with our
processing partners or card sponsoring institution to collect our fees via
revenue splits at point of origin. The termination of a contract with any one of
these parties could result in the loss of revenues.

A LACK OF BUSINESS OPPORTUNITIES OR FINANCIAL RESOURCES MAY IMPEDE OUR ABILITY
TO EXPAND AT DESIRED LEVELS, AND OUR FAILURE TO EXPAND OPERATIONS COULD HAVE AN
ADVERSE IMPACT ON ITS FINANCIAL CONDITION.

Our plans and opportunities will be focused on card issuing,
transaction processing and providing financial services to our varied client
base. The expansion and development of our business will depend on various
factors including the following:

o The demand for our card products, transaction processing and
financial services product by the current markets.
o The ability to form the appropriate relationships and obtain
necessary approvals for the installation of our card programs.
o The ability to install a transaction processing solution in an
efficient and timely manner.
o The ability to issue a sufficient numbers of cards which
relate to loyalty, rebate, reward, prepaid and other card
programs.
o The availability of financing for the expansion of our
business through partnerships, acquisition and hiring of
additional personnel.
o The increased acceptance of our card products in our target
markets.
o The increase of transaction fees revenue we receive.
o The deployment of larger numbers of the different card types
by us, and our different distribution channels
o The continued use of our card product by cardholders.

-27-

We expect that transaction levels on a newly created card program in a
developing market will not increase significantly. We will work to improve the
levels of usage of the card products by acquiring high-quality clients and
eliminating less-developed potential markets and adding new transactions types
that are compatible with our different products. However, we may not be
successful in materially increasing transaction levels through these measures.

OUR LOSS OF CURRENT RELATIONSHIPS WITH PROCESSORS, CARD PLANS AND FINANCIAL
INSTITUTIONS WILL HAVE A MATERIAL ADVERSE EFFECT ON FUTURE REVENUES AND
PROSPECTS.

Our revenue will be derived primarily from fees paid by users of our
card products, by fees shared between us and the processors and also by the
interchange revenues shared with the major card plan providers. Therefore, our
future success will be dependent on our ability to increase the transaction and
fee revenues that are created which are greater than our expenses. There can be
no assurances that our efforts to achieve this in the beginning will be
successful.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH THE LEADING SERVICE PROVIDERS
WHO ARE MORE ESTABLISHED AND BETTER CAPITALIZED THAN US.

We experience significant competition from banks, non-bank providers of
card programs, major processors as well as multiple card program suppliers. Many
of our competitors have materially greater financial resources than us and can
therefore implement ever changing technological developments to meet the level
of convenience that consumers demand. No assurance can be given that we will be
able to compete successfully with our more established and better-capitalized
competitors.

RISKS RELATED TO OUR SHARES

IN RECENT YEARS, THE STOCK MARKET IN GENERAL HAS EXPERIENCED PERIODIC PRICE AND
VOLUME FLUCTUATIONS. THIS VOLATILITY HAS HAD A SIGNIFICANT EFFECT ON THE MARKET
PRICE OF SECURITIES ISSUED BY MANY COMPANIES FOR REASONS OFTEN UNRELATED TO
THEIR OPERATING PERFORMANCE. THESE BROAD MARKET FLUCTUATIONS MAY ADVERSELY
AFFECT OUR STOCK PRICE, REGARDLESS OF OUR OPERATING RESULTS. THE MARKET PRICE OF
OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.

The price of our common stock is quoted on the OTCBB and constantly
changes. We expect that the market price of the common stock will continue to
fluctuate. These fluctuations may result from a variety of factors, many of
which are beyond our control. These factors include:

o quarterly variations in our financial results;
o operating results that vary from the expectations of
management, securities analysts and investors;

-28-

o changes in expectations as to our business, prospects,
financial condition, and results of operations;
o announcements by us or our competitors of material
developments;
o the operating and securities price performance of other
companies that investors believe are comparable to us;
o future sales of our equity or equity-related securities;
o changes in general conditions in our industry and in the
economy, the financial markets and the domestic or
international political situation;
o departures of key personnel; and
o regulatory and intellectual property considerations.

FUTURE SALES OF COMMON STOCK OR THE ISSUANCE OF SECURITIES SENIOR TO OUR COMMON
STOCK OR CONVERTIBLE INTO, OR EXCHANGEABLE OR EXERCISABLE FOR, OUR COMMON STOCK
COULD MATERIALLY ADVERSELY AFFECT THE TRADING PRICE OF THE COMMON STOCK, AND OUR
ABILITY TO RAISE FUNDS IN NEW EQUITY OFFERINGS.

Future sales of substantial amounts of our common stock or other
equity-related securities in the public market or privately, or the perception
that such sales could occur, could adversely affect prevailing trading prices of
our common stock and could impair our ability to raise capital through future
offerings of equity or other equity-related securities. We can make no
prediction as to the effect, if any, that future sales of shares of common stock
or equity-related securities, or the availability of shares of common stock for
future sale, will have on the trading price of our common stock. There are
currently 43,425,090 of our common stock available for sale.

OUR COMMON STOCK IS SUBJECT TO THE PENNY STOCK REGULATIONS THAT IMPOSE
RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON STOCK. AS A CONSEQUENCE, THE
ABILITY OF OUR STOCKHOLDERS TO SELL SHARES OF OUR COMMON STOCK COULD BE
IMPAIRED.

The Securities and Exchange Commission (the "Commission") has adopted
regulations that generally define a "penny stock" to be an equity security that
has a market price of less than $5.00 per share or an exercise price of less
than $5.00 per share subject to certain exceptions that are not applicable to
our Company at present. Our common stock is subject to the penny stock rules
that impose additional sales practice requirements on broker-dealers who sell
these securities to persons other than established customers and accredited
investors. The regulations require that prior to any transaction involving a
penny stock, a risk disclosure schedule must be delivered to the buyer
explaining the penny stock market and its risks. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase, and must have received the purchaser's written consent to the
transaction prior to sale. As such the market liquidity for the common stock
will be limited to the ability of broker-dealers to sell it in compliance with
the above-mentioned disclosure requirements.

-29-

You should be aware that, according to the Commission, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:

o control of the market for the security by one or a few
broker-dealers;
o "boiler room" practices involving high-pressure sales tactics;
o manipulation of prices through prearranged matching of
purchases and sales;
o the release of misleading information;
o excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
o dumping of securities by broker-dealers after prices have been
manipulated to a desired level, which hurts the price of the
stock and causes investors to suffer loss.

We are aware of the abuses that have occurred in the penny stock
market. Although we do not expect to be in a position to dictate the behavior of
the market or of broker-dealers who participate in the market, we will strive
within the confines of practical limitations to prevent such abuses with respect
to our common stock.

FAILURE TO REMAIN CURRENT IN REPORTING REQUIREMENTS COULD RESULT IN DELISTING
FROM THE OVER THE COUNTER BULLETIN BOARD.

Companies trading on the Over the Counter Bulletin Board ("OTCBB"),
such as the Company, must be reporting issuers under Section 12 of the Exchange
Act, and must be current in their reports under Section 13, in order to maintain
price quotation privileges on the OTCBB. If the Company fails to remain current
in its reporting requirements, the Company could be delisted from the Bulletin
Board.

In addition, the Financial Industry Regulatory Authority ("FINRA"),
which supervises the OTCBB, has adopted a change to its Eligibility Rule, in a
filing with the SEC. The change makes those OTCBB issuers that are cited for
filing delinquency in their Form 10-K/Form 10-Q three times in a 24-month period
and those OTCBB issuers removed for failure to file such reports two times in a
24-month period ineligible for quotation on the OTCBB for a period of one year.
The Company failed to file its Report on Form 10-Q for the period ended
September 30, 2009 within the requisite time period, and, as a result, has one
filing delinquency within the meaning of the Eligibility Rules. Under this rule,
a company filing with the extension time set forth in a Notice of Late Filing
(Form 12b-25) is not considered late. This rule does not apply to a company's
Current Reports on Form 8-K.

FAILURE TO MAINTAIN MARKET MAKERS MAY AFFECT VALUE OF OUR COMMON STOCK.

If the Company is unable to maintain FINRA member broker/dealers as
market makers, the liquidity of the common stock could be impaired, not only in
the number of shares of common stock which could be bought and sold, but also
through possible delays in the timing of transactions, and lower prices for the
common stock than might otherwise prevail. Furthermore, the lack of market
makers could result in persons being unable to buy or sell shares of the common
stock on any secondary market. There can be no assurance the Company will be
able to maintain such market makers.

-30-

SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE MAY AFFECT MARKET PRICE.

All the shares held by Consorteum Stockholders who received them in the
Exchange Agreement transaction were issued in reliance on the section 4(2)
exemption under the Securities Act of 1933. Such shares will not be available
for sale in the open market without separate registration except in reliance
upon Rule 144 under the Securities Act of 1933. In general, under Rule 144 a
person (or persons whose shares are aggregated) who has beneficially owned
shares acquired in a non-public transaction for at least six months, including
persons who may be deemed affiliates of the Company (as that term is defined
under that rule) would be entitled to sell within any three-month period a
number of shares that does not exceed 1% of the then outstanding shares of
common stock, provided that certain current Company information is then publicly
available. As of May 21, 2010 there were 43,425,090 shares of our common stock
eligible for sale pursuant to Rule 144. If a substantial number of the shares
owned by these stockholders were sold pursuant to Rule 144 or a registered
offering, the market price of the common stock at that time could be adversely
affected.

WE HAVE NEVER PAID ANY CASH DIVIDENDS BECAUSE WE HAVE NEVER HAD ANY EARNINGS,
AND WE WILL NOT PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

We have never paid any cash dividends on our common stock since we
began our business operations because we have never had earnings from which any
such dividends could be declared. Assuming we attain earnings in the future, we
do not intend to pay cash dividends. We intend to retain future earnings, if
any, for reinvestment in the development and expansion of our business. Any
credit agreements which we may enter into with institutional lenders or
otherwise may restrict our ability to pay dividends. Whether we pay cash
dividends in the future will be at the discretion of our board of directors and
will be dependent upon our financial condition, results of operations, capital
requirements, and any other factors that the board of directors decides is
relevant. See "Dividend Policy" and "Description of Securities - Common Stock".

-31-

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

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.

The Exhibits listed below are filed herewith as part of this Report on Form
10-Q.

EXHIBIT DESCRIPTION

EXHIBIT 31.1 RULE 13A-14(A)/15D-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002

EXHIBIT 31.2 RULE 13A-14(A)/15D-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002

EXHIBIT 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 32.2 CERTIFICATION PURSUANT TO RULE 13a-14(b) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Consorteum Holdings, Inc.
------------------------
Registrant

May 24, 2010 /s/ Craig A. Fielding
----------------- -----------------------
Date Craig A. Fielding, CEO

May 24, 2010 /s/ Peter Simpson
----------------- -----------------------
Date Peter Simpson, CFO

-32-

Attached files

Consorteum Holdings, Inc. Reports

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